The Bruises and Bumps Company makes and sells skateboards at an average price of

Question

The Bruises and Bumps Company makes and sells skateboards at an average price of $70 each. Over the past year they sold 4,000 skateboards. Its closest competitor, Broken Bones Inc., sells its skateboards at an average price of $65. If the point cross-price elasticity of demand between the two companies is 0.5, how many skate- boards will Bruises and Bumps sell if Broken Bones lowers their price 5%? Please explain your answer. Answer a. 4100 b. 3900 c. 3750 d. 4250 The Bruises and Bumps Company makes and sells skateboards at an average price of $70 each. Over the past year they sold 4,000 skateboards. Its closest competitor, Broken Bones Inc., sells its skateboards at an average price of $65. If the point cross-price elasticity of demand between the two companies is 0.5, how many skate- boards will Bruises and Bumps sell if Broken Bones lowers their price 5%? Please explain your answer. 4100 3900 3750 4250 a. 4100 b. 3900 c. 3750 d. 4250

Explanation / Answer

Answer is 4250

Proof:

4000+4000*0.05+0.5*100=4250

Since point cross elasticity between two companies =0.5

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