Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 14, Problem 14.5IP
To determine
The per-song pricing policy and Spotify’s pricing model.
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The pricing model for iTunes has been to price songs individually. In contrast, Spotify opted to offer unlimited song playing for a monthly fee.
True or False: Spotify's pricing model will likely yield more profit if the value that individuals attach to songs varies greatly across songs and across different people.
True
False
) Agatha's Inc. is about to introduce a new product in the market, but is not sure as to how it should price the product. The company is facing intense competition from five other companies. In such a situation, what should be Agatha’s Inc. pricing objective? Provide an explanation for your answer.
Assume Tea brands ChotooChai and BaraChai are competing brands in the market. With arrival of winter season, ChotooChai announces good promotional deals. Using ‘Comparative Statics Analysis’ of demand and supply model:
How will the managements of the two brands study the short-run and long-run impact on Tea Sales, after the announcement of promotions in the market of Tea?
Demonstrate and explain, with clearly labelled two panel diagrams, the ‘Rationing Function’ and the Allocating or ‘Guiding Function’ of Price.
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Managerial Economics: A Problem Solving Approach
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- Hardware, a small family-owned store in Middletown, sells a 100-pack of garnet sandpaper for $35. The Home Shoppe, a large retail hardware chain in neighboring Morristown, sells the same product for $29. Based on this scenario, what would you expect Merv immediate response to be? Merv will remove his advertisements and rely on word of mouth. Merv will reduce his price to respond to the price competition from the HomeShoppe. The HomeShoppe will initiate non-price competition with Merv. The HomeShoppe will raise its price to respond to the price competition from Merv.arrow_forwardThe marginal cost pricing model calculates a markup over marginal costs using estimates of the price elasticity of demand. Will any other pricing strategy result in higher profits?arrow_forward14-2. German brothels recently began offering a monthly subscription service for multiple purchasers. If you wished to reduce the incidence of prostitution, would you consider this pricing plan to be a desirable change?arrow_forward
- PART A: “There is constantly a shift in supply and demand curves and markets are never at equilibrium. As a result, there is no purpose of the concept of equilibrium.” Do you agree/disagree with this statement. PART B: Resorts give discounts to individuals who book in advance and stay over a weekend. Individuals who book at the last minute and do not stay over a weekend usually pay full price. Explain the difference between the two groups’ demand for resorts and the resorts’ pricing decisions? Ensure that you define any key terms used in your discussion.arrow_forwardThis set of questions concern indirect pricing. (versioning) Use the attached image to answer questions below. 1. Assume first that HP sells two bundles: Bundle A, containing one printer+one cartridge. Bundle B, containing one printer+two cartridges. What price should HP charge for Bundle A? 0, 80, 100, 120, 180 or 200? 2. Assume first that HP sells two bundles: Bundle A, containing one printer+one cartridge. Bundle B, containing one printer+two cartridges. What price should HP charge for Bundle B? 0, 80, 100, 120, 180 or 200? 3. Assume now that HP sells the printer and cartridges separately. Using your answers from the previous two questions: What price should HP charge for the printer? 0,20,40,60,80 or 100? 4. Assume now that HP sells the printer and cartridges separately. Using your answers from the previous two questions: What price should HP charge for one cartridge? 5. In your answers above, HP prices the printer: Below marginal cost At marginal cost Above marginal cost In…arrow_forwardKing of HeartsThe King of Hearts, a neighborhood pub in a small midwestern town, is owned and operated by Mags Doherty. Since it opened in 2001, annual sales have increased from $200,000 to $500,000. She carries a wide selection of domestic and imported beers. She reports that 55% of her sales are derived from beer, 30 percent from mixed drinks, and the remainder from menu items such as sandwiches, French fries, and potato chips. Many customers have asked Mags to add pizza to her menu. She would have to spend $8,000 for an oven and $4000 for dishes. The ingredients in a typical pizza would cost $10.00 and the additional labor expense per pizza would be $0.80. The utilities involved in preparing each pizza would be $0.20. She would sell a pizza for $21.00.QuestionsWhat is her breakeven point in units and dollars? Show your calculations. Assume she sells 100 pizzas a day. How long will it take her to break even? Show your calculations.arrow_forward
- Resorts give discounts to individuals who book in advance and stay over a weekend. Individuals who book at the last minute and do not stay over a weekend usually pay full price. Explain the difference between the two groups’ demand for resorts and the resorts’ pricing decisions? DEFINE ANY IMPORTANT TERMS.arrow_forwardTwo brands ABC and XYZ are competing brands in the market. With arrival of winter season, ABC announces good promotional deals. Using ‘Comparative Statics Analysis’ of demand and supply model. How will the managements of the two brands study the short-run and long-run impact on Tea Sales, after the announcement of promotions in the market of Tea? Demonstrate and explain, with clearly labelled two panel diagrams, the ‘Rationing Function’ and the Allocating or ‘Guiding Function’ of Price?arrow_forwardWhich of the following is most likely a monopolistically competitive market? Question 15 options: Airlines Electric company Restaurants All of the above are equally likely to be monopolistic competitioarrow_forward
- Topic: Pricing with Market Power Instructions: Show complete computations and label all graphs properly/accurately. (1) Enchanted Kingdom (EK) has higher demand during Christmas (D1 = P1 = 20 - 0.02Q1) than in other months (D2 = P1 = 2 - 0.002Q2); where Q = number of customers. The cost is the same for all months (C = Q + 0.002Q2). (a) What type of pricing scheme can EK use in order to control the number of customers and to ensure it is self-supporting. Compute for P1, P2, Q1 and Q2 in this pricing scheme. (b) Is it profitable for EK to employ uniform pricing scheme for all months? Why or why not?arrow_forwardAmelia's Authentic, a food court stall at a local shopping mall, has experienced a recent slump in revenue despite not making any changes to the menu, recipes, or pricing. Which of the following is not a reasonable hypothesis for what is driving this revenue dip? A) Decreased spending power of local consumers B) New competitor in the food court selling similar food C) Decreased foot traffic within the shopping mall D) Increased raw materials costs for meat and dairyarrow_forwardA firm practices third-degree price discrimination. With the aid of a graphical illustration, explain the firm’s pricing strategy to maximise profits.arrow_forward
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