BUSN5620 W4A

Now assume you work as a manager for a large automobile retailer. You meet a colleague for lunch and you discuss issues of importance to your industry such as falling revenues, volatile gas prices, and rising labor costs due to healthcare reform. Your colleague states that he has a strategy to deal with these events: he states that during this period of volatile gas prices you should raise your prices for your high-mileage vehicles (>30 mpg). He further states that these higher vehicle prices will generate more revenue thereby offsetting increased labor costs. You have determined that the price elasticity for your high-mileage vehicles is -2.2 based on reliable data. How would you respond?

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