Question
Robert Greenberg established Skechers Shoes company with more than 1000 locations all over the U.S. In 2021, the company hired a team of economists to
Robert Greenberg established Skechers Shoes company with more than 1000 locations all over the U.S. In 2021, the company hired a team of economists to estimate the daily demand for it's own brand Running Shoes along with other variables - the economist estimated the demand functions as follows:
Q = 100 - 3 P + 4 Py - 0.71 M + 0.95 Ax
Where
Q = the quantity of Skechers shoes demanded
P = the price of Skechers (in dollars)
M = the average income level (in thousands of dollars)
P = the price of Adidas Shoes (in dollars)
Suppose Skechers sells for $55 a pair, Adidas sells for $45, the company utilizes 50 units of advertising and average consumer income is $45. Using this information, answer the following questions:
- Calculate and interpret the own - price, cross-price and income elasticities
- For raising revenues, should this firm raise or lower the price? Why? Explain?
- Is Adidas a substitute or complementary good? Why? Explain using the calculated cross-price elasticities.
- Is Skechers a normal or an inferior good? Why? Explain
- What is the impact of advertising on the sale of Skechers Shoes? Explain
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