Firm A producing one good acquires another firm B producing another good.Price elasticity of demand for Firm A's good is -1.8 and Firm's B is -1.8.Holding other things constant and assuming both goods are complements,the acquiring firm should
A)lower prices on both goods with a larger decrease in Firm A's good
B)lower prices on both goods with a larger decrease in Firm B's good
C)Lower prices on both goods by the same amount
D)Lower prices on both goods

Question

Quizplus · Accepted Answer

Since the two goods are complements, a decrease in the price of one good will increase the demand for the other good. Since both firms have the same price elasticity of demand, a decrease in the price of both goods by the same amount will result in an equal increase in demand for both goods. Therefore, the acquiring firm should lower the prices of both goods by the same amount.

Firm a Producing One Good Acquires Another Firm B Producing