Problem 5 (15 points). To commemorate its anniversary, Hunt Valley Motors offered 2% cashback on its popular 2023 A6 Midsize SUV during the month of July. Customer responses were enthusiastic, with sales rising by 6% as a result of the promotion. The marginal cost of an A6 Midsize model for Hunt Valley Motors is $45,250, which is the amount paid to the manufacturer plus all related selling costs. Assuming all other things equal:
a) Estimate the price elasticity of demand for the 2023 A6 Midsize SUV.
b) Assuming the price elasticity of demand calculated in part (a) is still valid, how much should Hunt Valley Motors charge for the 2023 A6 Midsize SUV in order to maximize profits?
Briefly explain why you are proposing that price.
c) A Mexican tourist traveling through Baltimore is considering buying a 2023 A6 Midsize SUV and drive it to his home in Mexico tonight; however, the maximum price she is willing to pay for the A6 Midsize SUV car is $55,000. Should Hunt Valley Motors accept her offer or not? Explain why or why not and outline the assumptions you made to answer the question.