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:
