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# Indirect Price Discrimination, More Realistic and Complex Pricing

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12-1 Parking Lot Optimization (More Realistic and Complex Pricing)
Suppose your elasticity of demand for your parking lot spaces is -2, and price is \$8 per day. If your marginal cost is zero, and your capacity is 80% full at 9 A.M. over the last month, are you optimizing?

14-4 Microwave Ovens (Indirect Price Discrimination)
A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at \$70 and one with auto-defrost at \$80 while women value a simple microwave at \$80 and one with auto-defrost at \$150.
If there is an equal number of men and women, what pricing strategy will yield the greatest revenue? What if women compromise the bulk of microwave shoppers?

14-6 Bundling (Indirect Price Discrimination)
At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot price discriminate).

(Students with Early Classes) (Students without Early Classes)
Coffee 70 60
Banana 50 100

The marginal cost of coffee is \$10. The marginal cost of a banana is \$40. Is bundling more profitable than selling separately? If so, what price should be charged for the bundle?

#### Solution Preview

12-1
Because the elasticity of demand = -2, which is smaller than -1, the demand is inelastic and revenue can only rise if we decrease prices. Since there are still 20% of parking spaces not filled, we can lower the price to a point that will attract 20% more people to park at the lot. ε = (dq / q) / (dp / p), so (dp / p) = (dq / q) / ε = (0.2 / -2) = -0.1, meaning that the price needs to decrease by 10% to fill the lot to capacity. By lowering the price from the ...

#### Solution Summary

Microeconomics questions on pricing, elasticity of demand, price discrimination, and bundling.

\$2.19

## Strategy Implementation - Healthcare Industry

The Health Care Industry

The health care industry has been going through major structural changes in order to become more efficient to help stem rising costs of health care. During the previous decade, health care organizations hired MBAs to help streamline their organizations, introduce new efficiencies, and market their services. In addition, many physicians are obtaining MBAs in order to help introduce better management into the health care industry. Health maintenance organizations (HMOs) continue to hold down costs by emphasizing prevention, by limiting access to specialists, by requiring co-payments to make patients more sensitive to the costs of health care, and through increased bargaining power resulting from their size. There also have been mergers among health care organizations and hospitals. Unfortunately, many health care organizations have encountered financial difficulties and some have failed. The federal government also has tried to hold down costs by limiting Medicare and Medicaid reimbursements.

At the same time that the health care industry is struggling to become more efficient, the demand for health care is increasing and is expected o increase in the future because of an aging population, increased affluence, and advances in technology. By 2008, 7.2 percent of the US population will be 75 years or older. This compares with 5.2 percent in 1978. Actual employment levels in selected health care occupations in 1998 and projections for 2008 are as follows:

Note! See the attachment Occupations

1. Most people have some familiarity with hospitals and the health care industry. Based on your knowledge, in which quadrant of the staffing policies matrix (fortress, baseball team, club, and academy; the four distinct strategic staffing types four distinct strategic staffing types) do you think hospitals are located? Are the staffing policies of hospitals more like baseball teams, academies, clubs or fortresses? Explain our reasoning.

2. Examine the projections for the various health care occupational specialties. Are there substantial differences in the rates at which employment is expected to grow in the different occupations? How have the strategic actions by health care organizations, such as mergers, shifts to preventative approaches, and the focus on cost control, affected the expected growth of the different specialties? How is the market demand for medical care expected to affect employment in the different specialties?

3. Given the uncertainty of the demand for health care workers, how can health care organizations be prepared to meet their future needs for such employees? How can they help their employees prepare for their employment futures?

4. Do Porter's competitive strategies of cost leadership, differentiation, and niche or focus apply to hospitals or health care organizations? Explain.

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