Question #1: 40 Points
Considering the particular firm/industry, you work for now, or you may use one from the past if it lends itself to this question better. Answer the following questions. First, summarize the job you will be answering these questions about; you may interview a spouse or use a former job if it lends itself better to these questions, you can enumerate the answers or write them in paragraph form. This represents a good portion of your final exam, so please take into consideration when providing your answers.
Please include all questions in your answer.
- What were the key forces shaping the nature of competition and the opportunities for profit in this industry?
- What, if anything, does your firm do to insulate themselves from competitive forces? Give specific examples.
- Was the product homogenous or heterogeneous?
- Note some of the substitute products for the product being produced.
- Was geography a factor in determining this market (did it provide a monopoly power due to geography)?
- Were there many competitors, or did a small number of large firms dominate this industry?
- Was the demand for the product elastic or inelastic?
- What type of control did your firm exert over prices?
- Was this industry-government regulated? Or did regulatory policies affect your pricing and output decisions?
Question #2: 30 Points
Firms often employ price discrimination. They try to segment their markets and charge different prices to customers with varying elasticities of demand. The theory is simple. Identify those customers with highly-elastic demands (they’re the ones who are very sensitive to price and will be driven into the arms of your competitors by high prices), and cut prices. Next, identify customers with less-elastic/more inelastic demands (they’re the ones who are insensitive to price and are likely to buy anyway), and drive the price to them up. In other words, charge $40 for a new tire in your shop, but charge $60 for the same tire to the motorist stranded on the highway.
Such discrimination is relatively common. Discounts for children and senior citizens and special introductory rates for new magazine subscribers are more benign examples. But segmenting the market is not easy. Publix cannot quickly identify which customers will acquiesce to a higher price for broccoli, nor can Target easily detect which customers have an inelastic demand for candles.
Car dealers practice haggle-every-time discrimination. They try to guess the maximum price each customer is willing to pay and charge accordingly. They ask strategic questions about occupation, address, family, and what other dealerships shoppers have visited. All are designed to help predict what a consumer might be willing to pay.
More recently, the Georgia Department of Transportation (GDOT) completed an EZ-Pass lane with an interchangeable lane going South during the morning rush hours and North during rush hours in the afternoon. The “price” usually set on a per-mile basis, will be determined solely on what…you guessed it, “demand.” The fewer the number of commuters, the lower the rate will be. This is an example of third-degree price discrimination. A toll road is slightly different as the rate is usually set and does not fluctuate based on traffic patterns and demand for space on the interstate.
Please provide at least one example of price discrimination and explain whether it falls under first, second, or third-degree price discrimination. Please make sure this is answered in a paragraph format with supplemental materials and correctly cites sources.
See the links below for more information:
Question #3: 30 Points
Based on the context and readings in Chapter 16, “Monopolistic Competition” and the area of Advertising, that discusses the debate over advertising being a waste of resource use, or does it serve a valuable purpose? Consider both sides of the discussion and consider how advertisements are inundated into our current culture via social media and your purchasing history. With the ever-increasing focus on social media marketing, how has this impacted the costs of traditional advertising? Do you perceive the value to be different than more conventional methods? Is it more cost-effective? Defend your position with examples and make sure to cite your sources!