Question

Vik and Fleet produce trainers in the sports-shoe market. For one of their main products they have the following demand curves: Vik PV = 175 _ 1.2QV Fleet Pf = 125 _ 0.8Q f where P is in Br and Q is in pairs per week. The firms are currently selling 80 and 75 pairs of their products per week respectively. a. What are the current price elasticity’s for the products? b. Assume that Vik reduces its price and increases its sales to 90 pairs and that this also causes a fall in Fleet’s sales to 70 pairs per week. What is the cross-elasticity between the two products? c. Is the above price reduction by Vik to be recommended? Explain your answer.

Answer 1

Explanation:

Assume that Vik reduces its price and increases its sales to 90 pairs and that this also causes a fall in Fleet’s sales to 70 pairs per week.