A firm sells two goods X and Y)that are related in consumption.The estimated inverse demand and cost functions are: Good X and Y are: A)complements B)substitutes C)independent D)normal E)inferior

Question

Quizplus · Accepted Answer

If the goods are substitutes, the increase in the price of one good will lead to an increase in demand for the other good. Therefore, the firm cannot increase the price of either good as it will result in a decrease in demand for both goods. As a result, the firm will have to lower the price of both goods to increase sales, which may result in lower profit margins.

A Firm Sells Two Goods X and Y)that Are Related