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Business, 04.03.2021 20:30 Dustkeeton18
The citizens of Kings Landing enjoyed both honey cakes and lemon cakes and each kind of cake had many bakeries that specialized in each. Unfortunately for the lemon cake makers, an early freeze in Dorne damaged the lemon crop, driving the price of lemons up and increasing the cost of lemon cakes from 8 pennies a cake to 10 pennies a cake. The bad news for lemon cake bakers was good news for honey cake bakers. The honey cake bakers saw sales from honey cakes increase from 1000 a day to 1200 a day and the price of a honey cake increase from 6 pennies to 8 pennies.
Compute the cross price elasticity of honey cakes and the price of lemon cakes from the information you have available
Your calculated cross price elasticity includes both the impact of the increase in lemon cake prices and the impact of the increase in honey cake prices. Is your calculated cross price elasticity too high or too low?
What additional information would you need in order to correct your estimate of the cross price elasticity for honey cakes?
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Answers: 3
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