8. Substitutes, complements, or unrelated? You work for a marketing firm that has just landed a contract with Run-of-the

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8. Substitutes, complements, or unrelated?
You work for a marketing firm that has just landed a contractwith Run-of-the-Mills to help them promote three of their products:splishy splashies, raskels, and cannies. All of these products havebeen on the market for some time, but, to entice better sales,Run-of-the-Mills wants to try a new advertisement that will markettwo of the products that consumers will likely consume together. Asa former economics student, you know that complements are typicallyconsumed together while substitutes can take the place of othergoods.
Run-of-the-Mills provides your marketing firm with the followingdata: When the price of splishy splashies decreases by 4%, thequantity of raskels sold decreases by 4% and the quantity ofcannies sold increases by 3%. Your job is to use the cross-priceelasticity between splishy splashies and the other goods todetermine which goods your marketing firm should advertisetogether.
Complete the first column of the following table by computingthe cross-price elasticity between splishy splashies and raskels,and then between splishy splashies and cannies. In the secondcolumn, determine if splishy splashies are a complement to or asubstitute for each of the goods listed. Finally, complete thefinal column by indicating which good you should recommendmarketing with splishy splashies.
Relative to Splishy Splashies
Recommend Marketing with Splishy Splashies
Cross-Price Elasticity of Demand
Complement or Substitute
Complement or Substitute
Complement or Substitute