How much will total revenue change

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Question - You are the manager of a firm that receives revenues of $175,000 per year from product X and $50,000 per year from product Y. Both products have similar production costs. The own price elasticity of demand for product X is -1.5, and the cross-price elasticity of demand between product Y and X is 1.6. The end of the quarter is approaching and you are feeling pressured to increase the firm's revenues. To that end, one of your colleagues suggests a 2 percent price increase to product X, the most successful product in the firm.

a. Are products X and Y substitutes or complements?

b. How much will total revenue change if you follow your colleague's suggestion?

Reference no: EM133275971

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