6.10 Many home improvement retailers like Home Depot and Lowe's have low-price guarantee policies. At a minimum, these guarantees promise to match a rival's price, and some promise to beat the lowest advertised price by a given percentage. Do these types of pricing strategies result in Bertrand competition and zero economic profits? If not, why not? If so, suggest an alternative pricing strategy that will permit these firms to earn positive economic profits.
6.2 You are the owner of a local Honda dealership. Unlike other dealerships in the area, you take pride in your "No Haggle" sales policy. Last year, your dealership earned record profits of $2 million. In your market, you compete against two other dealers, and the market-level price elasticity of demand for mid-sized Honda automobiles is -1.2. In each of the last five years, your dealership has sold more mid-sized automobiles than any other Honda dealership in the nation. This entitled your dealership to an additional 25 percent off the manufacturer's suggested retail price (MSRP) in each year. Taking this into account, your marginal cost of a mid-sized automobile is $14,000.
What price should you charge for a mid-sized automobile if you expect to maintain your record sales? Instruction: Round your answer to two decimal places.