Let's consider another example. While Coke® and Pepsi® don't want you to consider the two colas substitutes, many people do. Keep in mind that a substitute doesn't have to be an exact replacement. But if the price of one cola changes, it could affect demand for the other.

   Suppose the price of a 12-pack of Coke increases from $2.50 to $2.75 and suppose the quantity demanded of Pepsi in some area increases from 1000 to 1025 12-packs. Let's compute the cross-price elasticity using the arc formula.

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