• Very Big US Auto. Very Big US Auto is one of the oldest and largest manufacturers of autos in the United States. Very Big US Auto has an international supply chain and is highly dependent on components manufactured abroad and assembled in the United States. Costs are rising in all aspects of production across the industry. Very Big US Auto is seeing inflationary pressure in everything we use: labor, materials, components, and computer chips. On the demand side, Very Big US Auto knows that demand is relatively elastic, with a price elasticity of demand of 1.2. But we also know that the pandemic has made some transportation substitutes less acceptable.

1. Is the demand curve for your product relatively elastic, inelastic, or unitary elastic? Demonstrate this for your company's product by how much the quantity demanded will change if you pass on the 10% increase in cost. In other words, prepare a forecast showing by what percentage the quantity demanded will change if your prices are raised by 10%. You must provide calculations showing the percentage change in quantity demanded.