Assignment task: Spooky Halloween Stores
Spooky Halloween Stores' marketing analytics group has estimated the following elasticities for the retailer's witch costume, fake nose, and Superman costume:
Price elasticities of demand (in absolute value terms):
- Witch costume 5.1
- Fake nose 3.0
- Superwoman costume 7.5
Cross price elasticities of demand
- Of the witch costume with respect to the price of the Superwoman costume 1.5
- Of the witch costume with respect to the price of the fake nose -0.5
Income elasticity of demand
- Witch costume 0.5
- Fake nose 1.0
- Superwoman costume 1.2
Please answer the following questions based on the above estimates and show your work. Make sure to type your answers.
a. If you increase the price of the Superwoman costume by 2%, what is your estimate of the percentage change in the volume of the Superwoman costumes sold?
b. If you increase the price of the Superwoman costume by 2%, what is your estimate of the percentage change of witch costumes sold?
c. If you increase the price of the Superwoman costume by 2%, would you predict the total revenue from Superwoman costume sales increases, decreases, or stays the same? Briefly explain.
d. Are witch costumes and fake noses substitutes or complements? How can you tell from the estimates?
e. Comment on whether each of the three products is a normal or inferior good. How can you tell from the estimates?
f. If your marginal cost of each witch costume is $20, what price should you charge for the costume? Explain.