Price Elasticity. The management of the Mini Mill Steel Company estimated the following elasticities for a special type of steel: ep (price elasticity) = -2, eI (income elasticity) = 1, and eXY (cross price elasticity) = 1.5 where X refers to steel and YY to aluminium. Next Year, the firm would like to increase the price of the steel it sells by 6%. The management forecasted that income will rise by 4% next year and that the price of aluminium will fall by 2 %.
A. If the sales this year are 1,200 tons of the steel, how many tons can the firm expect to sell next year?
B. By what percentage must the firm change the price of steel to keep its sales at 1,200 tons next year?