When Post Cereals, the Producer of Grape Nuts (GN), Was

Multiple Choice

When Post cereals, the producer of Grape Nuts (GN) , was going to acquire Nabisco's Shredded Wheat (SW) , Post wanted to know how a price increase in GN would affect profitability and whether to increase price before or after the merger. After fitting the log-linear function, log(QGN) = 1.998 - 2.085 log(PGN) + 0.62 log(I) + 0.14 log(PSW) , Post cereals concluded that:

A) The two cereals were close substitutes, so the lost revenue from an increase in the price of one would be recovered by the increased sales in the other.
B) The cross-price elasticity confirmed that the two cereals were substitutes, but not close substitutes.
C) There would be a large increase in the quantity demanded of Grape Nuts in response to an increase in the price of Shredded Wheat.
D) The demand for Grape Nuts was both price and income inelastic.