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Homework answers / question archive / 1) The marginal cost pricing model calculates a markup over marginal costs using estimates of the price elasticity of demand

1) The marginal cost pricing model calculates a markup over marginal costs using estimates of the price elasticity of demand

Accounting

1) The 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?

2) If cost shifting is just a useful public relations ploy, why does it get so much attention?

3) Will raising prices increase the rate of return from a line of business?

4) Can you think of a healthcare firm that does not price discriminate?

5) Price discrimination requires the ability to distinguish customers who are the most price sensitive and the ability to prevent arbitrage (resale of your products by customers who buy at low prices).  What attributes of healthcare products make that tasks easy to do?

6) Your pharmacy provides services to Medicare and PPO patients.  You estimate a price elasticity of demand of -2.2 for Medicare patients and -5.3 for PPO patients.  Your marginal and average cost for dispensing a prescription is $2.  What is the profit-maximizing dispensing fee for Medicare and PPO patients? Why might the price elasticities of demand differ?

7) You provide therapeutic massage services, focusing on stress reduction services that are not covered by insurance.  Your monthly overhead is $2,000.  You value your time at $20 per half hour (how long a therapeutic massage takes).  Supplies per massage cost $4.  You currently charge $75 per massage and have a volume of 100 clients per month.  Your trade journal says that a 5 percent reduction in prices typically results in a 7.5 percent increase in volume.  What would happen to your volume, revenues, and profits if you cut your price to $70? If your raised your price to $80?

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