Question

Kraft decide to reduce its cheese price by 10%. Price elasticity = 2 (10% price reduction = 20% increase in sales). Kraft estimates competetive elasticity to be 1 (competitors will shift pricing in same direction by same, %). Cross elasticity is expected to be -.7 (7% change in competitors prices result in change of firm sales by 7 of % price change). What is residual elasticity? Sales increase?

Answer 1

Answer:- The Residuae forice elasticity is the combination of three facturos :- O own" fouce clasticity :- own fouce elcyticity of demand is a measurement of the association between a change in the fource of a farchsulon good and a change in quantity demanded © Competitors Reaction" clasticity :- The reaction of competitoos force change to a fiom ś fou've change is known as Competitors Realtion Elasticity ☺ "Cross elasticity Cowes elasticity of demand is an economic Concert that mecause the red chion og demand op orice change takes place in the Substitute good. tine og demand of one quod lonen a dh Residuae fou're elas ti city - Own fou're Elasticity + [ competitvo Reaction elasticity • x - Gouch elasticity own fouce elasticity a rebetifoo reachibn elasticity: 1 Goross Elasticity : ..7

Residual Elasticity = 2 + CIX-.7) 2-17 11:31 ao Change in S B forwm Residual Elasticity (%): own Bouice Changecio) x peidere elasticita Sales Increase = lo x 13 - 11376 Competituro mealtion and Cowss fou're elasticity are expected to reduce the firm's initially Borojected Salb incoeages from au lo to 13%