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 $1.3 million. In your market, you compete against two other dealers, and the market- level price elasticity of demand for midsized Honda automobiles is -1.5. In each of the last five years, your dealership has sold more midsized automobiles than any other Honda dealership in the nation. This entitled your dealership to an additional 20 percent off the manufacturer's suggested retail price (MSRP) in each year. Taking this into account, your marginal cost of a midsized automobile is $12,000. What price should you charge for a midsized automobile if you expect to maintain your record sales?

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 $1.3 million. In your market, you compete against two other dealers, and the market- level price elasticity of demand for midsized Honda automobiles is -1.5. In each of the last five years, your dealership has sold more midsized automobiles than any other Honda dealership in the nation. This entitled your dealership to an additional 20 percent off the manufacturer's suggested retail price (MSRP) in each year. Taking this into account, your marginal cost of a midsized automobile is $12,000. What price should you charge for a midsized automobile if you expect to maintain your record sales?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 1.5CE

See similar textbooks

Related questions

Q: DO YOU THINK THE BENEFITS WILL OFFSET THE COSTS OF THE NEW HILTON CANCELLATION POLICY? WHY? 2. DO…

A: * ANSWER :- From the given information the answer is provided as ,

Q: You are the manager of a firm that receives revenues of $50,000 per year from product X and $50,000…

A: Here we calculate the change in total revenue by using the given information and using cross price…

Q: Don't use ai to answer I will report your answer Solve it Asap with explanation and calculation.

A: Marginal cost is the cost that a company will have to incur to produce an extra unit of product.…

Q: You are the manager of College Computers, a manufacturer of customized computers that meet the…

A: The profit-maximizing quantity represents the level of production where a company achieves its…

Q: Seven years ago, you started a cross-town delivery service. You have two types of deliveryservices.…

A: Price discrimination is a practice of charging different prices from different customers for the…

Q: As a manager of a chain of movie theaters that are monopolies in their respective markets, you have…

A: (1)The supply function can be written as Qs=2000+2P. From the supply function inverse supply…

Q: 3.4. EZjoint. After spending 10 years and $1.5 billion, you have finally gotten Food and Drug…

A: Profit maximization is the tendency of businesses to increase profits over the short or long term by…

Q: You are the general manager of a firm that manufactures personal computers. Due to a soft economy,…

A: Average Variable Cost (AVC) of producing a unit of output is: AVC = Material cost + Labor cost = 600…

Q: You are the manager of a firm that charges customers $16 per unit for the first unit purchased and…

A: Given graph:

Q: Francine is a a dental floss tycoon living in Montana.  She faces the following demand curve for her…

A: Price elasticity of demand measures the responsiveness of the demand of a commodity to a change in…

Q: You are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 70…

A: A measure of how price influences the quantity demanded is the price elasticity of demand for a…

Q: Revenues per year from product X $ 15,000 Revenues per year from product Y $ 80,000 Own price…

A: Price elasticity of demand measures the responsiveness in quantity demanded of a commodity to a…

Q: You are the manager of College Computers, a manufacturer of customized computers that meet the…

A: The college computers have 90% of their clients as students. To attract more students, the clients…

Q: 3) You make a lightweight compact foldable windbreaker. Your brand, Desert Wind Jackets, is well…

Q: You are a division manager at Toyota. If your marketing department estimates that the semiannual…

A: Inverse demand function can be written as follows: Revenue can be calculated as follows:

Q: ou are a pricing analyst for QuantCrunch Corporation, a company that sells a statistical software…

A: Two part tariff is followed by monopoly firm to maximize the profit. The consumer has to pay one…

Q: A firm estimates its price elasticity of demand for poutine to be -2 and its elasticity of demand…

A: Given Own price elasticity is -2 Advertising elasticity =0.1

Q: The manager of a convenience store competes in a monopolistically competitive market and buys cola…

A: Given, Elasticity of demand for cola = -4 Here, the market price of $1.25 per liter can be taken as…

Q: You work for a marketing firm that has just landed a contract with Run-of-the-Mills to help them…

A: Cross price elasticity of demand measures the responsiveness of changes in the demand for one good…

Question

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 $1.3 million. In your market, you compete against two other dealers, and the market-
level price elasticity of demand for midsized Honda automobiles is -1.5. In each of the last five years, your dealership has sold more
midsized automobiles than any other Honda dealership in the nation. This entitled your dealership to an additional 20 percent off the
manufacturer's suggested retail price (MSRP) in each year. Taking this into account, your marginal cost of a midsized automobile is
$12,000.
What price should you charge for a midsized automobile if you expect to maintain your record sales?
Instructions: Enter your response rounded to two decimal places.
$

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introducing the question

VIEW

Step 2: Calculating Optimal Markup & price

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 9 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

If automobiles and gasoline are complements, then their cross-elasticity coefficient is a. strictly greater than 1. b. positive. c. equal to zero. d. negative.
After running a promotional campaign, the owners of a local hardware store decided to decrease the prices for the advertised products sold in their store. One can infer that a. the promotional expenditures made the demand for the advertised products more elastic. b. the promotional expenditures made the demand for the advertised products less elastic. c. the promotional expenditures had no effect on the demand elasticity. d. the owners got it wrong. To cover the promotional expenses, they should have raised the prices.
In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is 1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenues?
Estimates presented in Exhibit 5 show that Android users have a higher price elasticity of demand for apps in the Google Play Store than do iPhone users in the Apple App Store. Why might Android users tend to be more sensitive to app prices than iPhone users? What categories or types of apps (for example, games/social media) do you think have the highest price elasticities?
The price elasticity of demand for air travel differs radically from first-class (1.3) to unrestricted coach (1.4) to restricted discount coach (1.9). What do these elasticities mean for optimal prices (fares) on a cross-country trip with incremental variable costs (marginal costs) equal to $120?
The Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales have averaged about 6,000 units per month during the past year. In August, Potomacs closest competitor, Spring City Stove Works, cut its price for a closely competitive model from $600 to $450. Potomac noticed that its sales volume declined to 4,500 units per month after Spring City announced its price cut. What is the arc cross elasticity of demand between Potomacs oven and the competitive Spring City model? Would you say that these two firms are very dose competitors? What other factors could have influenced the observed relationship? If Potomac knows that the arc price elasticity of demand for its ovens is 3.0, what price would Potomac have to charge to sell the same number of units it did before the Spring City price cut?
Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a. Calculate the price elasticity of demand between 90 and 110. b. Is the price elasticity of demand between 90 and 110 elastic, unit elastic, or inelastic? c. Will Erins total revenue rise if she increases the price from 90 to 110? d. Calculate the price elasticity of demand between 110 and 130. e. Is the price elasticity of demand between 110 and 130 elastic, unit elastic, or inelastic? f. Will Erins total revenue rise if she increases the price from 110 to 130?
(Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of Si per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Using the midpoint formula, show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?
If bus travel is an inferior good, its income elasticity of demand is a. strictly greater than 1. b. positive. c. equal to zero. d. negative.
The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfigh ter, reduced the price of its electric toothbrush from $35 to $30. As a result, Stopde cays sales declined by 1,500 units per month. What is the arc cross elasticity of demand between Stopdecays toothbrush and Decayfighters toothbrush? What does this indicate about the relationship between the two products? If Stopdecay knows that the arc price elasticity of demand for its toothbrush is 1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30. What is Stopdecays average monthly total revenue from the sale of electric toothbrushes before and after the price change determined in part (b)? Is the result in part (c) necessarily desirable? What other factors would have to be taken into consideration?
Along a segment of the demand curve where the price elasticity of demand is less than 1, a decrease in price a. is impossible. b. will increase total revenue. c. will decrease total revenue. d. decreases quantity demanded.
Prove that price elasticity of demand is not the same as the slope of a demand curve.