How much should domestic automakers increase the price

Reference no: EM13182590

A researcher estimated that the price elasticity of demand for automobiles in the U.S. is -1.2, while the income elasticity off demand is 3.0. Next year, U.S. automakers intend to increase the average price of automobiles by 5 percent, and they expect consumers' disposable income to rise by 3 percent.

(a) If sales of domestically produced automobiles are 8M in this year, how many automobiles do you expect U.S. automakers to sell next year?

(b) by how much should domestic automakers increase the price of automobiles if they wish to increase sales by 5 percent next year?

Reference no: EM13182590

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