Question

8. Consider the Jonathan’s Players Company, producers of bicycles, ice skates, golf clubs, snow boards, and other recreational equipment. He is trying to decide whether or not to market his own brand of roller blades; the product would sell for $50 per pair. His marketing department at Players conducts an exhaustive survey and estimates the following elasticities: price elasticity of demand for roller blades is -2.5 in this price range, the current price elasticity of demand for snow boards is -0.75, cross price elasticity of roller blades for roller skates is -1.7, cross price elasticity of roller blades for bicycles is 0.8, and income elasticity for roller blades is 2.8

Are the following statements true, false, or uncertain? Carefully explain your reasoning.

A. Roller blades and roller skates are substitutes, but roller blades and bicycles are complements.

B. If Players increases the price of roller blades, it would be able to lower the price of snowboards by 4 percent and hold firm revenues fixed.

C. If the average consumer income increases by 2.7 percent, the quantity of roller blades sold will increase by 7.56 percent.

D. Players could offset a 2 percent decrease in consumer income with a 2.24 percent decrease in the price of roller blades and hold sales fixed.

E. Players could increase its expected revenues if it would increase the price of its roller blades.

Answer 1