Question

Honda Motor Company is considering offering a $ 1 comma 900 rebate on its​ minivan, lowering the​ vehicle's price from $ 29 comma 700 to $ 27 comma 800. The marketing group estimates that this rebate will increase sales over the next year from 39 comma 900 to 55 comma 800 vehicles. Suppose​ Honda's profit margin with the rebate is $ 6 comma 730 per vehicle. If the change in sales is the only consequence of this​ decision, what are its costs and​ benefits? Is it a good​ idea?​ Hint: View this question in terms of incremental profits.

Answer 1

It is a good idea as the profit will increase by 301,434,000

Step-by-step explanation:

Profit with the rebate: 6,730

minivan sold 55,800

total profit:

55,800 x 6730 = 375,534,000

not we will calcualte the cost which is:

39,000 minivan will be sold at 1,900 lower cost:

39,000 x 1,900 = 74.100.000 opportunity cost

net : 375,534,000 - 74,100,000 = 301,434,000‬