You Work as a Forecaster for a Luxury Automobile Manufacturer

Multiple Choice

You work as a forecaster for a luxury automobile manufacturer. You know that there is a strong positive relationship between the demand for luxury automobiles and income levels. The government issues a report predicting that it expects income levels to increase steadily over the next 5 years. All else equal, which of the following courses of action would you recommend to the firm?

A) Don't change the amount of investment made, but raise the price of luxury automobiles in response to the expected increase in the demand.
B) Suggest that the firm make an investment in new capital to produce luxury automobiles only after it can verify an increase in income levels.
C) Start to increase investment now so that when income levels increases and the demand for luxury automobiles increases, the firm will be able to meet the new demand.
D) Suggest that the firm curtail its advertising to avert a substantial increase in demand for luxury automobiles.