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Suppose the demand for beer is characterized

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A2.Suppose the demand for beer is characterized by the following point elasticities;own price elasticity = -2.5;cross-price elasticity with soda = +3;income elasticity = +2;Based on the given elasticities, answer the following. Explain your answers.;a. If a firm in the industry wishes to increase total sales revenue (ignoring cost considerations), will it raise or lower its selling price? Why?;b. What happens to the demand for beer if the price of soda falls by 2%? Explain your answer.;c. What happens to the demand for beer if consumer income rises by 5%? Be specific.;d. Is beer a normal or inferior good? Explain.

 

Paper#28621 | Written in 18-Jul-2015

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