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Problem: Research indicates that the demand for Wheatie O's cold breakfast cereal can be characterized by the following:
own price elasticity = [-0.80]
cross-price elasticity with Ricey Crisp's brand cold breakfast cereal = 2.0
income elasticity = 3.0
Considering the information provided, answer and explain the following:
a. If the firm wants gross sales revenue for Wheatie O's to increase (independent of costs), should price be raised or lowered? Why?
b. How do you expect the demand for Wheatie O's to change if the price of Ricey Crisp's were to increase by 10%? Explain.
c. How do expect the demand for Wheatie O's to change when consumer income falls by 4%?
d. Should Wheatie O's be thought of as a normal or an inferior good? Why?
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