In order to increase profits during a prolonged slowdown in sales, the largest manufacturers of automobiles in the

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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.


OA C

Source; Official Guide