Sales Projections & Elasticity
The Future Flight Corporation manufactures a variety of frisbees selling for $2.98 each. Sales have averaged 10,000 units per month during the last year. Recently Future Flight's closest competitor, Soaring Free Company, cut its prices on similar frisbees from $3.49 to $2.59. Future Flight noticed that its sales declined to 8,000 units per month after the price cut.
(a) What is the arc cross elasticity of demand between Future Flight's and Soaring Free's frisbees?
(b) If Future Flight knows the arc price elasticity of demand for its frisbees is -2.2, what price would they have to charge in order to obtain the same level of sales as before Soaring Free's price cut?