Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 14A, Problem 3E
To determine
To ascertain: The number of seats that should be protected for full fare passengers and not authorized in order to release to the segment with a price of $250.
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Price matching is a strategic move that
A- seeks to make cheating unprofitable.
B- must generally be announced publicly in order to have the desired effect.
C- has no usefulness to managers if a simultaneous pricing decision is going to be made only one time.
D- both a and b
E- all of the above
If the price match policy is a good idea, how widely should it be advertised? Explain. You woke up this morning to a troubling advertisement on TV: A+ Rental Cars' local competitor is discounting their economy rentals. After doing a little digging, you discover that your competitor has launched an aggressive advertising campaign, reducing the price on their economy line from $32.99 to $24.99. Based on your knowledge of previous pricing practices, you expect a similar price reduction across all vehicle types.
Are there opportunities to combine volumes of spending from different busi- nesses, and standardize product requirements, reduce the number of suppliers providing these products, or exploit market conditions to receive better pricing?
Chapter 14A Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- EasyTax markets both a deluxe and a standard version of its software. The deluxe version contains additional features that are likely to appeal to sophisticated users. The marginal costs of producing and distributing the two versions are virtually equal, and equal to zero. The market is equally divided into two types of users, sophisticated and unsophisticated (and assume one user of each type). The maximum willingness to pay for both types of users for the standard and deluxe versions are given in the following table: Standard Deluxe Unsophisticated 20 20 Sophisticated 35 100 (a) Assuming that the company producing EasyTax can distinguish between sophisticated and unsophisticated users (because, for instance, the sophisticated users are registered accountants), what are the optimal prices to be charged to each category of users? What is the company’s profit? (b) Assume now that the company cannot distinguish between the two types of user.…arrow_forwardLalaFast 21 is a major carrier based in the Philippines and has made a strategy of cutting fares drastically on certain routes with large effects on traffic in those markets. For example, on the Baguio-Cubao route the entry of LalaFast into the market caused average fares to fall by 48 per cent and increased market revenue from P21,327,008 to P47,064,782 annually. On the Tuguegarao-Caloocan route, however, the average fare cut in the market when LalaFaST entered was 70 per cent and market revenue fell from an annual P66,201,553 to P33,101,514.Questions1. Calculate the PEDs for the Baguio-Cubao route and Tuguegarao-Caloocan route.2. Explain why the above market elasticities might not apply specifically to Lalafast 21.3. If LalaFast 21 does experience a highly elastic demand on the Baguio-Cubao route, what is the profit implication of this?4. Explain why the fare reduction on the Tuguegarao-Caloocan route a profitable strategy for LalaFast may still be.arrow_forwardDuring 2001, many European markets for mobile phones reached saturation. Because of this, mobile phone operators started to shift their focus from growth and market share to cutting costs. One way to do this is to reduce spending on international calls. These calls are routed through network operating companies called carriers. The carriers charge per call-minute for each destination, and they often use a discount on total business volume to price their services. A mobile phone operator must decide how to allocate destinations to carriers.V-Mobile, a mobile phone operator in Denmark, must make such a decision for a T-month planning horizon when it has C carriers to choose from, D destinations for its customers’ calls, and there are I price intervals for a typical carrier. (These intervals define a carrier’s discount structure.) The inputs include the following: The price per call-minute for destination d from carrier c in price interval i in month t The (forecasted) number of…arrow_forward
- During 2001, many European markets for mobile phones reached saturation. Because of this, mobile phone operators started to shift their focus from growth and market share to cutting costs. One way to do this is to reduce spending on international calls. These calls are routed through network operating companies called carriers. The carriers charge per call-minute for each destination, and they often use a discount on total business volume to price their services. A mobile phone operator must decide how to allocate destinations to carriers.V-Mobile, a mobile phone operator in Denmark, must make such a decision for a T-month planning horizon when it has C carriers to choose from, D destinations for its customers’ calls, and there are I price intervals for a typical carrier. (These intervals define a carrier’s discount structure.) The inputs include the following: The price per call-minute for destination d from carrier c in price interval i in month t The (forecasted) number of…arrow_forwardIf your marketing department estimates that the semiannual demand for the highlander is q=150,000. - 1.5 P, what price should you charge in order to maximize revenues from the sales of highlanderarrow_forwardSuppose you had a Bresnahan type of econometric study of the mid-range hotel (accommodation) industry, and this results in the following estimated demand and cost equations; Demand: P = 95.67 – 1.64Q + 0.75Y1 + 0.42Y1Q + 0.65 Y2 where P is price, Q is quantity, Y1 is the price of a close substitute and Y2 is consumers’ income. Cost equation: P = 2.67 + 0.21Q – 0.36Y1Q + 0.16W where P is price, Q is quantity, Y1 is the price of a close substitute and W is the wage rate in the industry. Using this information, calculate the Lerner index for this industry. Does market power exist in the industry? Justify your answerarrow_forward
- Addition/improvement of amenities: (Demand curve shifts right, equilibrium price and quantity increase.) Potentially increased demand: Enhanced value proposition attracts guests seeking specific features. Possible increase in revenue: Higher perceived value might justify slightly higher pricing. Removal/downsizing of amenities: (Demand curve shifts left, equilibrium price and quantity decrease.) Potentially decreased demand: Guests seeking specific features might choose competitors with better offerings. Possible decrease in revenue: Reduced value proposition could make Candlewood Suites less competitive. Why: Amenities directly impact guest experience and perceived value. Adding or improving amenities can attract new guests and justify higher prices. Conversely, removing or reducing amenities can make Candlewood Suites less appealing and lead to lost revenue. Draw supply and demand curve for each of the above cases. Also, draw shifts in supply and demand curve for each. ADR vs…arrow_forwardA travel agency identifies two customer segments for a cruise ship. The demand curve for customers that are less price-sensitive is D1=1000-2P1. The demand curve for customers that are more price-sensitive is D2=1000-3P2. The cost of maintaining each cabin is $50. If one single price is charged, what is the price to maximize the profit? What is the profit? If the differential prices are charged to each customer segment, what is the price for each customer segment respectively? What is the total profit? What is the profit increase by charging different prices to each customer segment compared with one single price?arrow_forwardQ4) Pricing in practice are influenced by the following, except a. customer demand b. competitor's action c. predatory pricing d. discretionary pricingarrow_forward
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