Question

You work for a marketing firm that has just landed a contract with Run-of-the-Mills to help them promote three of their products: splishy splashies, flopsicles, and mookies. All of these products have been on the market for some time, but, to entice better sales, Run-of-the-Mills wants to try a new advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are typically consumed together while substitutes can take the place of other goods.

Run-of-the-Mills provides your marketing firm with the following data: When the price of splishy splashies decreases by 5%, the quantity of flopsicles sold increases by 4% and the quantity of mookies sold decreases by 6%. Your job is to use the cross-price elasticity between splishy splashies and the other goods to determine which goods your marketing firm should advertise together.
Complete the first column of the following table by computing the cross-price elasticity between splishy splashies and flopsicles, and then between splishy splashies and kipples. In the second column, determine if splishy splashies are a complement to or a substitute for each of the goods listed. Finally, complete the final column by indicating which good you should recommend marketing with splishy splashie.
Relative to Splishy Splashies
Cross-Price Elasticity of Complement or Recommend Marketing
with Splishy
Demand Substitute Splashies
Flopsicles
Kipples

Answer 1

please check the attached image for the table showing the answers

Step-by-step explanation:

Cross price elasticity of demand measures the responsiveness of quantity demanded of good A to changes in price of good B.

cross price elasticity = percentage in quantity demanded / percentage change in price

cross-price elasticity between splishy splashies and flopsicles = 4% / 5% = 0.8

cross-price elasticity between splishy splashies and kipples = 6% / 5% = 1.2

because the cross price elasticity of demand between splishy splashies and flopsicles is 0.8, they are complement goods and should be advertised together.

because the cross price elasticity of demand between plishy splashies and is 1.2, they are substitute goods and should not be advertised together