1. According to some translations, Nobel Laureate Albert Einstein once said, "God does not play dice with the universe." Does this mean that a profit maximizing firm would never use something like dice or a roulette wheel to help shape its pricing decisions? Explain.
2. Does the presence of online auction sites, such as eBay, make it easier or harder for traditional retailers and wholesalers to engage in profitable price discrimination? Explain.
3. You are the owner of a local Honda dealership. Unlike other dealerships in the area, you pride in your "No Haggle" sales policy. Last year your dealership earned record profits of $1.5 million. However, according to the local Chamber of Commerce, your earnings were 10% less than either of your competitors. In your market, price elasticity of demand for midsized Honda automobiles is -4.5. In each of the last five years, your dealership has sold more midsized automobiles than any other Honda dealership in the nation. This entitled your dealership to an additional 30% off the manufacturers suggested retail price (MSRP) in each year. Taking this into account, your marginal cost of a midsized automobile is $11,000. What price should you charge for a midsized automobile if you expect to maintain your record sales?
4. You are the manager of a local sporting goods store and recently purchased a shipment of sixty sets of skis and ski bindings at a total cost of $30,000 (your wholesale supplier would not you purchase the skis and bindings separately, nor would it let you purchase fewer than 60 sets). The community in which your store is located consists of many different types of skiers, ranging from advanced to beginners. From experience, you know that different skiers value skis and bindings differently. However, you cannot profitably price discriminate because you cannot prevent resale. There are about 20 advanced skiers who value skis at $350 and ski bindings at $250; 20 intermediate skiers who value skis at $250 and ski bindings at $375; and 20 beginning skiers who value skis at $175 and ski bindings at $325. Determine your optimal pricing strategy.
5. You own a franchise of rental car agencies in Florida. You recently read a report indicating that about 80 percent of all tourists visit Florida during the winter months in any given year, and that 60 percent of all tourists travelling to Florida by air rent automobiles. Travelers not planning ahead often have great difficulty finding rental cars due to high demand. However, during nonwinter months tourism drops dramatically and travelers have no problem securing rental car reservations. Determine the optimal pricing strategy, and explain why it is the best pricing strategy.