Suppose Tinsel Town Videos Lowers the Price of Its Movie

question 217

Multiple Choice

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership.What is the value of the cross-price elasticity between the two movie club memberships?

• A)-1.6
• B)-0.625
• C)0.625
• D)1.6

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Definitions:

Arbitrage

The simultaneous purchase and sale of the same assets in different markets to profit from unequal prices.

Vertical Contracts

Agreements between firms at different levels in the supply chain, such as between a manufacturer and a retailer, to control the terms of sale or distribution.

Upstream Price Discrimination

A pricing strategy where producers or wholesalers charge different prices to retailers or distributors, often based on the amount being purchased or the bargaining power of the buyer.

New Product

refers to a good or service recently developed or introduced to the market that fulfills a newly identified or existing customer need.