Tour companies and cruise lines often offer last minute fares that are far below the prices paid by customers who have booked their trips far in advance. Use marginal analysis to explain this pricing tactic.
What will be an ideal response?
The answer rests on the marginal cost and the marginal revenue of the pricing tactic. If a cruise ship still has vacant cabins within a few days of its departure, it is unlikely that they will be sold at the regular price. If the cruise line can sell those cabins, even at a steep discount, they will get some marginal revenue; as long as the marginal revenue exceeds the marginal cost of having the extra passengers on the ship, the firm’s profits are increased. Since most of the costs of running a cruise ship are fixed costs, i.e., they do not change with the number of passengers on board, then it is likely that this strategy will increase the cruise line’s profits.
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Refer to Figure 3-4. At a price of $20, how many units will be sold?
A) 400 B) 500 C) 600 D) 800
The bid-asked spread is likely to be greater on securities that are
A) issued in larger denominations. B) have low market risk. C) less liquid. D) traded in a deep market.
The wages for Nike workers increases. At the same time, we see the price for Adidas shoes increase. How does this affect the market for Nike shoes?
a. The demand curve will shift to the left; the supply curve will shift to the left b. The demand curve will shift to the left; the supply curve will shift to the right c. The demand curve will shift to the right; the supply curve will shift to the left d. The demand curve will shift to the right; the supply curve will shift to the right
Suppose that the price of a pizza is $10 and that the price of a blouse is $30 . At her present level of consumption, Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/4 . To maximize total utility, she should
a. buy more pizzas and fewer blouses b. buy fewer pizzas and more blouses c. continue to buy the same quantities of pizza and blouses d. spend more time consuming pizza e. spend more time buying blouses