Question

You own two different energy drink brands with similar elasticities: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow", you can only increase your total sales if

Answer 1

Answer: b. Prices for “600 minute energy” are reduced

Step-by-step explanation:

The drinks have similar elasticities so they are substitutes. This means that reducing the price of one will cause people to demand less of the other drink. By reducing the price of "Blue Cow", there will be less demand for "600 minute energy".

To increase total sales therefore, the effects of the decrease in the price of Blue Cow must be counteracted. To do so, the price of 600 minute energy must be reduced as well. This way people will demand the two drinks more. This reduction will draw in people buying other drinks apart from these 2 thereby increasing total sales.