you work for a marketing firm that has just landed a contract with run - of - the - mills to help them…

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: guppy gummies, 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 guppy gummies decreases by 1%, the quantity of flopsicles sold decreases by 18% and the quantity of mookies sold increases by 3%. your job is to use the cross - price elasticity between guppy gummies 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 guppy gummies and flopsicles, and then between guppy gummies and mookies. in the second column, determine if guppy gummies 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 guppy gummies. relative to guppy gummies cross - price elasticity of demand complement or substitute recommend marketing with guppy gummies mookies flopsicles chapter 05: aplia homework attempts keep the highest / 1 8. substitutes, complements, or unrelated? grade it now save & continue

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: guppy gummies, 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 guppy gummies decreases by 1%, the quantity of flopsicles sold decreases by 18% and the quantity of mookies sold increases by 3%. your job is to use the cross - price elasticity between guppy gummies 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 guppy gummies and flopsicles, and then between guppy gummies and mookies. in the second column, determine if guppy gummies 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 guppy gummies. relative to guppy gummies cross - price elasticity of demand complement or substitute recommend marketing with guppy gummies mookies flopsicles chapter 05: aplia homework attempts keep the highest / 1 8. substitutes, complements, or unrelated? grade it now save & continue

Answer

Explanation:

Step1: Recall cross - price elasticity formula

The cross - price elasticity of demand ($E_{xy}$) is given by $E_{xy}=\frac{%\text{ change in quantity demanded of good }x}{%\text{ change in price of good }y}$. If $E_{xy}>0$, the goods are substitutes; if $E_{xy}<0$, the goods are complements; if $E_{xy} = 0$, the goods are unrelated.

Step2: Calculate cross - price elasticity for guppy gummies and flopsicles

We know that when the price of guppy gummies decreases by 1%, the quantity of flopsicles sold decreases by 18%. Using the cross - price elasticity formula, $E_{gf}=\frac{- 18%}{-1%}=18$. Since $E_{gf}>0$, guppy gummies and flopsicles are substitutes.

Step3: Analyze relationship between guppy gummies and mookies

We are given that when the price of guppy gummies decreases by 1%, the quantity of mookies sold increases by 3%. Using the cross - price elasticity formula, $E_{gm}=\frac{3%}{-1%}=- 3$. Since $E_{gm}<0$, guppy gummies and mookies are complements.

Step4: Make marketing recommendations

For flopsicles, since they are substitutes for guppy gummies, marketing them separately might be a good idea as a price change in guppy gummies leads to a positive cross - price elasticity. For mookies, since they are complements to guppy gummies, joint marketing campaigns can be effective to increase sales of both products.

Answer:

Guppy gummies and flopsicles are substitutes. Guppy gummies and mookies are complements. Recommend marketing flopsicles separately and marketing mookies jointly with guppy gummies.