Tomoca and Kaldis are both operating in hot drinks market. For one of their products, Machiato, they have the

following demand curves:

Tomoca PT= 175 - 1.2QT Kaldis PK= 125 - 0.8QK

Where P is in Birr and Q is in cups per day. The firms are currently selling 80 and 75 cups of coffee per day respectively.

a. What are the current price elasticities for their product

b. Assume that Tomoca reduces its price and increase its sales at 90 cups and that this also causes a fall in Kaldis' sales

to 70 cups per day. What is the cross elasticity between the two products?

c. Is the above price reduction by Tomoca recommended? Explain your answer.