Question

An automaker has a car that gets 10km/liter of gasoline. Gas prices are predicted to increase by 3.5% p.a. over the next 10 years. The marketing department has warned the engineers that customers are very focused on monthly spending on gasoline when deciding which car to purchase. What will fuel consumption have to be in 10 years in order to satisfy the requirement that monthly gas consumption remain unchanged in nominal terms?

Answer 1

14.11 km/L

Explanation:

If the current price is 'P', the price after 10 years at an increase rate of 3.5% per year will be:

`P_F=P*(1+0.035)^(10)\\P_F=1.411P`

The rate in km/L required to maintain the same nominal gas consumption is:

`C=(10\ )/(P)* (1.411P)/(L)\\ C=14.11\ km/L`

Fuel consumption in 10 years will have to be 14.11 km/L in order for monthly gas consumption to remain unchanged.