Manufacturers belive that the profits will increase, despite the price increase
Profit = Revenue - Cost
Revenue = Price * Quantity
1. Look for how they are planning to reduce costs
or
2. Still keep revenue higher than before (if sales don't go down as much as the increase, then revenue will still be higher)
A. Automobile manufacturers will, of necessity, raise prices whenever they introduce a new model.
Does explain how profits will increase
B. The smaller automobile manufacturers will continue to take away a large percentage of business from the largest manufacturers.
Does explain how profits will increase for largest manufacturers
C. The increased profit made on cars sold will more than compensate for any decline in sales caused by the price increases.
This is aligned with our pre-thinking idea 2D. New safety restraints that will soon become mandatory for all new cars will not be very costly for manufacturers to install.
Does explain how profits will increase due to price hike. This gets into another future consideration and it's costs, which is irrelevant
E. Low financing and extended warranties will attract many price-conscious consumers.
If customers are price conscious, they will not go for higher priced cars.
kalra
In order to increase profits during a prolonged slowdown in sales, the largest manufacturers of automobiles in the United States have instituted record-setting price increases on all their models. The manufacturers believe that this strategy will succeed, even though it is inconsistent with the normal relationship between price and demand.
The manufacturers' plan to increase profits relies on which of the following assumptions?
A. Automobile manufacturers will, of necessity, raise prices whenever they introduce a new model.
B. The smaller automobile manufacturers will continue to take away a large percentage of business from the largest manufacturers.
C. The increased profit made on cars sold will more than compensate for any decline in sales caused by the price increases.
D. New safety restraints that will soon become mandatory for all new cars will not be very costly for manufacturers to install.
E. Low financing and extended warranties will attract many price-conscious consumers.