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Joe is a manager in a drug store and he is responsible for setting prices of...

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General Management

Joe is a manager in a drug store and he is responsible forsetting prices of batteries. He knows the price elasticities of thetop 2 brands – Energizer and Duracell – from previous research.They are shown in the table below, in which the column representsthe brand with price change. For instance, the number on the topright is the cross price elasticity of the demand for Energizerwith respect to the price of Duracell.

Price change

Energizer

Duracell

Energizer

-2

1.3

Duracell

1.5

-1.8

The current price and sales are shown in the table

Price

Cost

Units (packs)

Profits

Energizer

$5.5

$4.5

700

Duracell

$6

$5

500

Total

Interpret the cross-price elasticity of 1.3. (2 points)

If Joe wants to increase price of one of the product by 10%,which brand should he increase price in order to achieve greatertotal profits? Show your work. (6 points)

Answers:

Answer & Explanation Solved by verified expert
4.0 Ratings (752 Votes)
Answer a Here we need to interpret the crossprice elasticity of 13Price ChangeEnergizerDuracellEnergizer213Duracell1518Crossprice elasticity is a way to measure how closely the twoproducts are related and how the change of one products price willimpact the demand of the other product It is measured asfollows Change in Qty New Quantity Demanded of Energizer OldQuantity Demanded of EnergizerOld Quantity Demanded ofEnergizer Change in Price New Price of Duracell Old Price ofDuracellOld Price of DuracellIf XED is    See Answer
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