Question
Suppose a firm sells two goods, Good A and Good B. Use the following information to answer the question below and calculate the price elasticity
Suppose a firm sells two goods, Good A and Good B. Use the following information to answer the question below and calculate the price elasticity od demand (Ed) for Good A?
Profit maximizing price of Good A = $6000
MC at profit maximizing level of output of Good A = $1200
MC at profit maximizing level of output of Good B = $400
Total revenue of Good A = $80000
Total revenue of Good B = $68000
Rothschild index of Good B = 0.6
Price elasticity of the market demand for Good B = -1.2
Suppose that the firm noticed that when it increased the price of Good A from $4000 to $6000, the sales of Good B decreased from 8000 to 2000 units. Calculate and classify the cross-price elasticity of demand between Good A and Good B. will Good A and Good B are classified as substitutes or compliments?
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