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In a coffee shop, the price of coffee increased from 250 to 300
In a coffee shop, the price of coffee increased from 250 to 300. As a result, the sold quantity decreased by 100 units. At the same time, the sold quantity of cheesecake decreased by 40 pieces. The price of the cheesecake was unchanged: 300. Before the price increase, the total revenue from the cheesecake was 30,000 How much is the cross-price elasticity of cheesecake to the price change of coffee? (number, 2 decimals, indicate with ","sign if it is negative, e.g.-9.99) According to the previous result, the two goods are
In a coffee shop, the price of coffee increased from 250 to 300. As a result, the sold quantity decreased by 100 units. At the same time, the sold quantity of cheesecake decreased by 40 pieces. The price of the cheesecake was unchanged: 300. Before the price increase, the total revenue from the cheesecake was 30,000 How much is the cross-price elasticity of cheesecake to the price change of coffee? indicate with sign if it is negative, e.g. -9.99) (number, 2 decimals, According to the previous result, the two goods are a
Expert Solution
Ans: The cross-price elasticity of cheesecake to the price change of coffee is -2.75
Explanation:
Before the change in price of coffee ;
Total quantity of cheesecake = Total revenue / price of cheese cake = 30,000 / 300 = 100 pieces
New quantity of cheesecake = 100 - 40 = 60 pieces
Initial price of coffee ( P1) = $250
New price of coffee ( P2) =$300
Initial quantity of cheesecake ( Q1) = 100
New quantity of cheese cake ( Q2) = 60
Cross -price elasticity of demand = ?Q/?P *( P1 + P2 / Q1 + Q2)
= {( 60 -100) / ( 300 - 250 ) } * {( 250 + 300 ) / ( 100 + 60 )}
= ( -40 / 50) * ( 550 / 160)
= -0.8 * 3.44
= -2.75
Ans: According to the previous result , the two goods are complementary.
Explanation:
If yhe cross- price elasticity of demand is negative , then the two goods are complementary.
If yhe cross- price elasticity of demand is positive , then the two goods are substitutes.
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