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Unformatted text preview: Davis, Spring 2006 KEY E303, Problem Set #6 1. We-R-Food's, a restaurant consulting firm estimates that in the Southeastern United States a 10% reduction in the price of fried potatoes will increase sandwich sales by 20%. But they further estimate that a 10% reduction in the price of salads will decrease sandwich sales by 15%. a. What is the implied cross price elasticity of sandwiches with respect to changes in the price of fried potatoes? η sandwiches ff = __% ∆ Q s /% ∆ P ff = -20/10 = -2 ______________________________________ b. What is the implied cross price elasticity of sandwiches with respect to changes in the price of. salads? η sandwiches salads = _% ∆ Q s /% ∆ P salads = -15/-10 = 1.5 c. From your cross price elasticity estimates, what can you say about the relationship between fried potatoes and sandwiches, and between salads and sandwiches at fast food restaurants in the Southeastern United States? Why?...
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This note was uploaded on 04/12/2010 for the course ECON 303 taught by Professor Shrestha during the Fall '08 term at VCU.
- Fall '08