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Calculate the arc price elasticity of tempurpedic mattresses

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A local mattress company lowers the price of its Tempurpedic mattress from $4200 to $3600. Sales increase by 10 percent. The store manager notices that Sleep Number 360 bed sales decrease by 10 percent.

a. Calculate the arc price elasticity of Tempurpedic mattresses. Explain what it means.

b. Calculate the arc cross-price elasticity of Sleep Number 360 beds. Based on your calculation is Sleep Number 360 a substitute or a complement? Why?

c. Was the price decision good or bad for the supermarket? Explain.

d. If you were to estimate a demand equation for Tempurpedic mattresses, which variables would you choose as explanatory variables?

Reference no: EM132503216

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