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 two other dealers, and the market-level price elasticity of demand for midsized Honda automobiles is -1.6. 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 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 a midsized automobile if you expect to maintain your record sales?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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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 two
other dealers, and the market-level price elasticity of demand for midsized Honda automobiles is -1.6. 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 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 a
midsized automobile if you expect to maintain your record sales?
Transcribed Image Text: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 two other dealers, and the market-level price elasticity of demand for midsized Honda automobiles is -1.6. 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 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 a midsized automobile if you expect to maintain your record sales?
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