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Raise Price?
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c. Calculate the cross price elasticity of demand for croissants with respect to
the price of coffee. How is coffee related to croissants? Why?
XY
Relationship
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2. Joe is evaluating the marketing strategy at his restaurant and inn. Suppose
that in response to a $2.00 off" sales promotion for Spaghetti dinners, Joe
finds that nightly dinner sales increase from 20 per night to 40. Normally,
the dinners sell for $6.00.
a. What is the arc price elasticity of demand?
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Y / N / Cant tell
Y / N / Cant tell
Explanation _____________________________________________
3. Fred McCutchen a new employee at McCutchoni Frozen Foods estimates that the
price elasticity of demand for McCutchoni Frozen Pizzas to be -1.5, as
compared to a price elasticity of demand for frozen pizzas in general of -2.34.
In light of the relative inelasticity of McCutchoni Frozen Pizza's, Fred
recommends raising the price to increase sales revenues. You, a more
experienced member of the firm, are suspicious of Joe's estimate, and are
skeptical of his recommended plan of action? Why? (Hint: Think about the
determinants of price elasticity of demand)
Reason to suspect Freds
estimate______________________________________________
Reason to doubt Freds plan of action
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