Palm Cassidy Auto faces a serious strategic managerial decision

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Palm Cassidy Auto faces a serious strategic managerial decision. Scenario 1: They can sell cars by simply posting a price. If the customer is willing to buy, clerks fill-out paperwork and the sale is complete. Scenario 2: They can hire commissioned sales associates to ask questions and then gauge customers willingness and ability to pay. 

Under scenario 1 the Palm Cassidy Auto's MC is $2,000 per unit (which is also the AVC). By using scenario 2 the MC and AVC both increase by $1,000 per unit (to $3) but FC's are $5 per month regardless of which scenario is used. Under this approach, each customer essentially pays their full reservation price (willingness to pay).

With a demand curve of P = 12 - Q, which strategy should Pal Cassidy Auto use and why?

  • 7 years ago
Palm Cassidy Auto faces a serious strategic managerial decision
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