Question 3 (9 points) Allbirds is a brand of shoes made out of wool. Allbirds shoes sell for $95/pair. Production and distribution costs are $60/pair.

Part (a) Assuming Allbirds has chosen the price that it believes maximizes profits, what does Allbirds believe about the elasticity of demand for its shoes?

Part (b) As an analyst following the shoe industry, you predict that in the future many other shoe manufacturers will launch lines of shoes made out of wool. Assuming this prediction is correct, what is the likely qualitative effect on the elasticity of demand for Allbirds shoes? CIRCLE ONE (no explanation necessary): (i) Demand will become more inelastic (ii) Demand elasticity will not change (iii) Demand will become more elastic

Part (c) You also predict that the price of wool will rise. Taking into account your answer to part (b), how do you predict that the mark-up (expressed as a fraction of price, i.e., (price - cost)/price) of Allbirds shoes will change?