You are the manager of a firm that receives revenues of $40,000 per year from pr

Question

You are the manager of a firm that receives revenues of $40,000 per year from product X and $90,000 per year from product Y. The own price elasticity of demand for product X is -1.5, and the cross-price elasticity of demand between product Y and X is -1.8.

How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 2 percent?

I studied a similar question to this one and tried to replicate the process but am having trouble.  I can't find what im doing wrong, Thank you!

Explanation / Answer

BY applying the elasticity formula on X you get that the quantity falls by 3% for a 2% rise in price of x.

that becomes (0.97)*1.02*40000=39576 which is your new revenue from product x

similarly on applying the same concept for elasticity for y on x you see that the quantity for y reduces by 3.6% since negative cross elasticity denotes that they are complements .

Since no informaTION IS GIVEN REGARDING price of Y we can take 0.964*1*90000=86760 to be the new revenue from Y

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