Why would it be valuable for a business to know the cross elasticity of demand for the two products it produces: peanuts and popcorn?
Please provide the best answer for the statement.
The cross price elasticity of demand shows the responsiveness of the quantity demanded for one product to a change in the price of another product. The business can use this concept to determine whether there is a substitute, complementary, or independent relationship between peanuts and popcorn. If peanuts and popcorn are substitutes, a rise in the price of peanuts will cause an increase in the quantity demanded for popcorn (the cross elasticity will be positive). On the other hand, if peanuts and popcorn are complementary goods, a rise in the price of peanuts will decrease the quantity demanded for popcorn (the cross elasticity will be negative). The business will want to know the nature of the relationship between the two products and how responsive the quantity demanded for one product is to a change in the price of the other before a price is changed. This cross elasticity information will be useful for increasing total revenue and profits.
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