# SU The Best Price Strategy in Managerial Economics Question

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1) Seven years ago, you started a cross-town delivery service. You have two types of delivery
services. You have a small parcel service for anything that is flat and measures less than 11×17.
You have a package service using a 100 lb. capacity bike trailer for anything weighting up to 10
lbs. Initially, you charged the same price for each service, but since the beginning of the Covid19 pandemic you have seen an increased in the demand for your package service. The demand
for the package services seems to be more inelastic than the demand for parcels. You are now
wondering if you should charge different prices for the parcel and package service, or should
you segment the market and charge two different prices?
Complete the tables below and determine the best price strategy: price the services
differently in each segment; or continue the one price policy?
Combined Parcels & Packages
Price
Parcels and Packages
100
90
80
70
60
50
40
30
20
10
TR
MR
TC
50
120
190
260
330
400
470
540
610
680
MC
MR-MC
Profit
1600
2300
3000
3700
4400
5100
5800
6500
7200
7900
2) The Parcels Market
Price
Parcels
100
90
80
70
60
50
40
30
20
10
0
50
100
150
200
250
300
350
400
450
TR
MR
TC
MC
1150
1650
2150
2650
3150
3650
4150
4650
5150
5650
MR-MC
Profit
3 ) The Packages Market
Price
100
90
80
70
60
50
40
30
20
10
Packages TR
50
70
90
110
130
150
170
190
210
230
MR
TC
MC
MR-MC
Profit
450
650
850
1050
1250
1450
1650
1850
2050
2250
What is the best pricing strategy? Demonstrate the difference in the profit from
each strategy.
3) Should the delivery service charge one price or will segmentation increase
profits? Support your conclusion using the profits calculated in Questions
1,2,and 3. Determine the maximum profit for the combined market, i.e. 1
price for both services, and show the maximum profit if the market is
segmented into
sub-markets for parcels and packages, charging 2 different prices.
4)
You operate a Caribbean destination resort. You currently offer plans for a cruise departing from
the resort and plans for a casino stay. It is expected that in 2021 there will be some return to more
normal travel. You will re-launch your advertising for 2021 announcing that customers will be
able to do both tours for one price. Your marginal cost per customer across both tours is
\$4800.
a) Here are the customer preferences. Determine how much your net profit will
increase with a single bundle price compared to the maximum net profit you would
make with a high price strategy.
Destination Resort Packages
Customer 1
Cruise
\$7,000
Casino
\$3,000
Customer 2
\$2,000
\$6,000
b) From experience you know that some traveler will never bundle. For example,
you know that about 21% of your customers decline cruises because of sea sickness.
At least 12% decline the casino trip saying they dont believe in gambling. As a
rough estimate you initially expect that approximately 33% of your customers will
never bundle. Will mixed bundling increase profits? You must show that