You own two products, each of which is a substitute for the other. You raise pri

Question

You own two products, each of which is a substitute for the other. You raise price on the
first product. What happens to marginal revenue?
a. MR for the first product falls but increases for the second.
b. MR rises for both products.
c. MR falls for both products.
d. MR for the second product falls but increases for the first.
2. Your company produces and sells Product A, which has an associated elasticity of demand
of _1.8. You acquire as a substitute product B, which has an associated elasticity
of demand of _2.0. How should you handle pricing?
a. Raise price on both products with a larger increase on Product A.
b. Raise price on both products with a larger increase on Product B.
c. Reduce price on both products with a larger decrease on Product A.
d. Reduce price on both products with a larger decrease on Product B.

Explanation / Answer

1. b 2. c

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