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3. (i) The Write Easy Company manufactures a variety of pens selling for $2.98 each. Sales have averaged 10,000 units per month during the last year. Recently Write Easy’s closest competitor, Joy Write Company cut its prices on similar pens from $3.49 to $2.59. As a result Write Easy’s sales declined to 8,000 units per month.
(a) Calculate the arc cross price elasticity of demand between Write Easy’s and Joy Write’s pens.
(b) If Write Easy knows its own arc price elasticity of demand for its pens to be -2.2, what price would they have to charge in order to restore their monthly sales back to 10,000 units? (Assume that Joy Write maintains its price at $2.59.)
Show and explain all calculations.
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