Fredrick Croft BUSI 620
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QUESTIONS FOR CRITICAL THINKING 6
Salvatore Chapter 12
Discussion question 7: Quantity discounts are not a form of price discrimination because
the firm saves on handling large orders. True or false? Explain.
False. Quantitiy discounts are considered second-degree price
discrimination, which is defined by Salvatore (p. 508) as “charging of a
uniform price per unit for a specific quantity or block of the product sold to
each cus- tomer, a lower price per unit for an additional batch or block of the
product, and so on.”
Discussion question 8:
(a) Why are first- and second-degree price discrimination less common than third-degree
price discrimination?
Third-degree price discrimination is the most common form of rice
discrimination because it is the type that classifies charging different
consumer groups different rates. This happens across many industries
depending on who the buyer is. Companies will often sell products to end
consumers at a higher rate than they will to commercial buyers. Third-
degree discrimination also incudes purchases made with coupons which, in
2009, included 367 billion coupons issued in the US (Salvatore, p.510)
(b) Are lower airline fares at midweek an example of third-degree price discrimination?
Salvatore defines price differentiation to business versus vacationers on
airlines as third-degree discrimination. However, the lower airline fares
midweek could possibly be due to price elasticity of demand. Overall, I would
say in and of itself, no, charging lower fares midweek is not price
discrimination as much as it is a resulte of demand price elasticity.
(c) Under what conditions would it not be useful to charge different prices in different
markets (i.e., practice third-degree price discrimination) even if possible?
It would not be useful to charge different prices in different markets if the
price elasticity of demand for the different markets is the same.
Discussion question 13: What are
(a) the advantages of cost-plus pricing?
Cost-plus pricing is fast, requires less precise input data, less expensive and
simple and easy to use.
(b) the disadvantages of cost-plus pricing?
Cost-plus does not rely on precise input variables and therefor will not
realize the ideal profit margin pricing; it also does not take in to account
demand or opportunity costs.
(c) Why is incremental cost pricing the correct pricing method? Why is full-cost pricing
equal to it?
Fredrick Croft BUSI 620
Incremental cost pricing is the best type of pricing ot use as it is the only way
to correctly obtain the optimal price to maximize profits. Incremental cost
pricing is equal to full-cost pricing because they both assume that the
company is operating at maximum capacity and therefore have the same
factors included.
Problem 5: The Dairy Farm Company, a small producer of milk and cheese, has
