Assume that vik reduces its price and increases its sales, Econometrics

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Assume that vik reduces its price and increases its sales

Vik and Fleet produce trainers in the sports-shoe market. For one of theirmain products they have the following demand curves:Vik PV ¼ 175 1:2QVFleet Pf ¼ 125 0:8Q fwhere P is in £ and Q is in pairs per week.The firms are currently selling 80 and 75 pairs of their products per weekrespectively.

a. What are the current price elasticities for the products?

b. Assume that Vik reduces its price and increases its sales to 90 pairsandthat this also causes a fall in Fleet's sales to 70 pairs per week. What isthe cross-elasticity between the two products?

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