Question

Honda Motor Company is considering offering a $2000 rebate on its minivan, lowering the vehicle's price from $30,000 to $28,000. The marketing group estimates that this rebate will increase sales over the next year from 40,000 to 55,000 vehicles. Suppose Honda's profit margin with the rebate is $6000 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits?

Answer 1

The decision to offer a $2000 rebate on Honda's minivan has both costs and benefits. The rebate is expected to increase sales, but it will also decrease Honda's net profit per vehicle.

Step-by-step explanation:

The decision to offer a $2000 rebate on Honda's minivan has both costs and benefits. Let's break it down:

1. Benefits: The rebate is expected to increase sales from 40,000 to 55,000 vehicles over the next year. This increase in sales will generate additional revenue for Honda.
2. Costs: The cost of the rebate is $2000 per vehicle. Since the profit margin with the rebate is $6000 per vehicle, Honda's net profit per vehicle will decrease by $2000.

To calculate the overall costs and benefits, we'll need to consider the change in sales and the profit margin per vehicle.