Cost Price

In: Business and Management

Submitted By copointer
Words 3931
Pages 16
Distinguish between the terms "rates" and "price" as relates to transportation?

ANS:
A rate, appropriate to the regulation of transportation, refers to the amount that can be found in a Rate Tariff Book as payment to a carrier for performing a given transportation service, and is the lawful charge for the service. Under deregulation, price is a more appropriate term applying to what transportation carriers charge for their services; price representing the value of services performed based on prevailing market forces.

2. The theory of contestable markets is offered to identify the relevant market structure for the deregulated transportation environment. Explain the theory.

ANS:
Explanation is offered for the case of airline deregulation. For deregulation to work, its market structure must closely resemble pure competition. The airline industry appeared to be oligopolistic and would prevent new entrants. Some consensus did exist that the airline industry could perform competitively. This provides the rationale for the theory, which proposes that potential competition be substituted for the active participation of many sellers. For the theory to work, four conditions have to be met: no barrier to market entry, no economics of scale, consumers would be willing to switch quickly among carriers, and existing carriers had to be prevented from responding to new entrants' lower prices.

3. Define and discuss Cost of Service Pricing.

ANS:
Cost of service pricing takes a marginal-cost approach to pricing. Cost of service pricing can also be analyzed as a total cost or fully allocated cost approach to price setting, where the price charged by a carrier for a movement of a commodity represents the recovery of the related costs to make the movement. Here:

Price = FC + VC + Profit.

Price is determined by the allocation of…...

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