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For some time, two firms have charged $2.00 per unit of strapping material for securing loads on long-haul trucks and each has been selling about 40,000 units per month. Last month, Strap-It reduced its price to $1.40 per unit and its volume increased to 48,000 units. During that month, TieDown (the other company) maintained its price at $2.00 but saw its volume decline to 36,000 units.
a. What is the price elasticity of demand facing Strap-It?
b. What is TieDown's cross-price elasticity of demand for Strap-It price changes?
c. If the price elasticity of demand for TieDown is the same as that for Strap-It, what price reduction for TieDown would be required to increase its monthly volume back to 40,000 units per month?
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