Question

Honda Motor Company is considering offering a rebate on its​ minivan, lowering the​ vehicle's price from to . The marketing group estimates that this rebate will increase sales over the next year from to vehicles. Suppose​ Honda's profit margin with the rebate is 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.

Answer 1

Answer:

the numbers are missing, so I looked fro a similar question:

"Honda Motor Company is considering offering a $2,000 rebate on its minivan, lowering the vehicle's price from $30,000 to $28,000. The marketing group estimates that this rebate will increase sales over the next year from 40,000 to 55,000 vehicles. Suppose Honda's profit margin with the rebate is $6,000 per vehicle."

additional revenue generated by the rebate = 15,000 minivans x $6,000 = $90 million

the total economic cost of the rebate (money lost due to the rebate) = number of minivans sold without the rebate x rebate = 40,000 x $2,000 = $80 million, since the rebate includes all minivans, not just the additional 10,000 units.

Honda will gain = $90 - $80 = $10 million with the rebate, so it is a good idea.