Suppose an auto manufacturer sells cars at $10,000 per car. Marginal costs are $5,000 per car
Suppose an auto manufacturer sells cars at $10,000 per car. Marginal
costs are $5,000 per car. The vice president in charge of sales and marketing says that one month sales with discounts of 10% typically increase sales by roughly 80% during the sale, suggesting a demand elasticity of -8. You advise her to lower her prices on a permanent basis. She responds that her cars are durables and she is worried that she is “stealing” customers and shifting demand from the future. Does she have a point?
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