Question
A local supermarket lowers the price of its Atlantic Salmon fillets from $12/lb. to $9.00/lb.Sales increase by 20 percent.The store manager notices that T-bone steak
A local supermarket lowers the price of its Atlantic Salmon fillets from $12/lb. to $9.00/lb.Sales increase by 20 percent.The store manager notices that T-bone steak sales decrease by 15 percent.
a.Calculate the arc price elasticity of salmon fillets.Explain what it means.
b.Calculate the arc cross-price elasticity of T-bone steak.Based on your calculation is T-bone steak a substitute or a complement? Why?
c.Was the price decision good or bad for the supermarket?Explain why.
d.If you were to estimate a demand equation for salmon fillets, which variables would you choose as explanatory variables?
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