Question
Honda Motor Company is considering offering a $ 1 comma 900$1,900 rebate on its minivan, lowering the vehicle's price from $ 29 comma 000$29,000 to
Honda Motor Company is considering offering a $ 1 comma 900$1,900 rebate on its minivan, lowering the vehicle's price from $ 29 comma 000$29,000 to $ 27 comma 100$27,100. The marketing group estimates that this rebate will increase sales over the next year from 38 comma 70038,700 to 55 comma 90055,900 vehicles. Suppose Honda's profit margin with the rebate is $ 5 comma 840$5,840 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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