You work for a venture capital firm and you are evaluating three proposals (A, B, C) for funding. All three firms are start-ups in the Artificial Intelligence (AI) sector. Among many other things, all proposals include an estimate of the cross-price elasticity (CPE) of the firm’s own product to the main product of a large software firm X. These are the three CPE estimates:

 Firm A: 0.15 

Firm B: 0.9 

Firm C: -0.7

It is well-known that for legal reasons, Firm X’s production cost will go up by 20% and that this will lead to higher prices for its product. Assuming that the funding proposals are equally attractive otherwise, which firm would you invest in? Explain your thinking.

Answer rating: 100% (QA)

Answer CPE AX crossprice elasticity of product A wrt X percentage change in demand of pr... View the full answer