US Auto Company would like to offer rebates to its customers in order to increase sales....

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Finance

US Auto Company would like to offer rebates to its customers inorder to increase sales. If it lowers prices sales willincrease.Â Â Â This will depend on the priceelasticity of demand. Assume that the price elasticity of demand is1.5. This firm is considering a $400 rebate on its cars. Alsoassume the following information on prices and costs before therebates:
Â Â Â Â Â Â Â Â Â Averageprice percarÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $9,000 per car
Â Â Â Â Â Â Â Â Â Expectedsales volume at $9,000) per carÂ Â Â Â 1,000,000cars
Â Â Â Â Â Â Â Â Â Averagetotal costs percarÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $8,200 per car
Â Â Â Â Â Â Â Â Â TotalvariablecostÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $6,400,000,000
Calculate the present total fixed costs, average variable costsand average fixed costs.
What is the present breakeven point?
What is the change in revenue resulting from the $400 pricereduction?
What is the effect on the cost per car after the change? Inother words what is the average cost per car after the change?
Should the change be made?
Please show the calculation. Thank you.

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Calculation of present total fixed costs average variablecosts and average fixed costsSales 1000000 carsAverage total cost per car 8200Total cost at current level of sales Average total cost percar x SalesTotal cost at current level of sales 8200 x 1000000Total cost at current level of sales820000000000Total Variable cost 6400000000Total cost at current level of sales Total Variable costTotal fixed cost820000000000 6400000000 Total fixed costTotal fixed See Answer

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