Run-of-the-mills provides your marketing firm with the following data: when the price of guppy gummies decreases by 5%, the quantity of frizzles sold increases by 4% and the quantity of cannies sold decreases by 6%. your job is to use the cross-price elasticity between guppy gummies and the other goods to determine which goods your marketing firm should advertise together.

Guppy Gummies with Frizzles

Explanation:

We calculate cross elasticity of demand between guppy gummies and other products with the formula

XED = % change in qty demanded of A / % change in price of B

For Guppy Gummies with Frizzles

XED = 4 / -5 = -0.8

For Guppy Gummies with Cannies

XED = -6 / -5 = 1.2

A negative XED denotes complementary goods and positive denotes substitutes. Complementary goods are the ones that are marketed together as they are consumed or used together whereas substitutes are used in place of each other.

Building upon the argument, Guppy Gummies and Frizzles are to be marketed together.

Hope that helps.

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