Elasticities for special type of doughnuts

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Reference no: EM131165105

The Dolly Madison Inc at Emporia estimated the following elasticities for a special type of doughnuts: price elasticity EP = 2, income elasticity EI = 1, and cross elasticity EXY = 1.5, where X refers to doughnuts and Y to bagels. Next year, the firm would like to increase the price of the doughnuts it sells by 6 percent. Management forecasts that income will rise by 4 percent next year and that the price of bagels will fall by 2 percent. (a) If the sales this year are 120,000 doughnuts, how many doughnuts can the firm expect to sell next year? (b) By what percentage must the firm change the price of doughnuts to keep its sales at 120,000 tons next year?

Reference no: EM131165105

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