Question
Honda Motor Company is considering offering a $ 1 comma 800$1,800 rebate on its minivan, lowering the vehicle's price from $ 29 comma 800$29,800 to
Honda Motor Company is considering offering a $ 1 comma 800$1,800 rebate on its minivan, lowering the vehicle's price from $ 29 comma 800$29,800 to $ 28 comma 000$28,000. The marketing group estimates that this rebate will increase sales over the next year from 40 comma 60040,600 to 55 comma 40055,400 vehicles. Suppose Honda's profit margin with the rebate is $ 5 comma 160$5,160 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.
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