Which of the following statements regarding price elasticity is incorrect? a. \(A\) product with a perfectly inelastic demand would have the same demand even as prices change. b. \(A\) product with a perfectly inelastic demand would see demand change as prices change. c. When demand is price elastic, lower prices stimulate demand. d. When demand is price elastic, higher prices reduce demand.
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"Relevant costs for pricing decisions are full costs of the product." Do you agree? Explain.
Give two examples of a value-added cost and two examples of a non-value-added cost.
Jason Brady is the managing partner of a business that has just finished building a 60 -room motel. Brady anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same price. Brady estimates the following operating costs for next year: The capital invested in the motel is \(\$ 1,500,000\). The partnership's target return on investment is \(20 \% .\) Brady expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. 1\. What price should Brady charge for a room-night? What is the markup as a percentage of the full cost of a room-night? 2\. Brady's market research indicates that if the price of a room-night determined in requirement 1 is reduced by \(10 \%\), the expected number of room-nights Brady could rent would increase by \(10 \%\). Should Brady reduce prices by \(10 \% ?\) Show your calculations.
Global Airlines is a major low-price airline carrier for both domestic and international travel. The company guarantees the "lowest price" ticket for travel within the United States. The "lowest price" ticket guarantee does not apply for travel on Monday mornings and Friday evenings, which are busy travel times for business travelers. 1\. Do these pricing practices of Global Airlines violate any anti-trust laws? Why or why not? 2\. Why is Global Airlines not offering a price guarantee for flights on Monday mornings and Friday evenings? Do you agree with this policy? Explain briefly. 3\. What other factors should Global Airlines consider before implementing these pricing policies?
Describe value engineering and its role in target costing.
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