You are the owner of a local Honda dealership. Unlike other dealerships in the area, you take pride in your "No Haggle"sales policy. Last year, your dealership earned record profits of $1.4 million. In your market, you compete against twoother dealers, and the market-level price elasticity of demand for midsized Honda automobiles is -1.6. In each of thelast five years, your dealership has sold more midsized automobiles than any other Honda dealership in the nation. Thisentitled your dealership to an additional 40 percent off the manufacturer's suggested retail price (MSRP) in each year.Taking this into account, your marginal cost of a midsized automobile is $13,000. What price should you charge for amidsized automobile if you expect to maintain your record sales?

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Answered: You are the owner of a local Honda…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You are a pricing analyst for QuantCrunch Corporation, a company that sells a statistical software package. To date, you only have one client. A recent internal study reveals that this client’s inverse demand for your software is P=1500-5Q and that it would cost you $1,000 per unit to install and maintain software at this client’s site. What is the profit that results from two-part pricing? (Hint: set the per-unit price for each unit of the software installed and maintained equal to marginal cost; and charge a fixed “licensing fee” that extracts all consumer surplus from the client)
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Question 19 Laila decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Laila: has a higher "marginal utility to price ratio" for the hockey game than for the play. obtains more marginal utility from the play than from the hockey game. is relatively unappreciative of the arts. has recently attended several other Broadway plays.

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