Suppose you are in the 19th century and you are working for a railway company called...
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Suppose you are in the 19th century and you are working for a railway company called Monopoly Rail. The company runs a monopoly railway service connecting Liverpool and Manchester. Currently, the company has two types of carriages for its trains: first class and economy class. The economy class offers an okay ride between the two cities, whereas the first class offers an extravagant one. For simplicity, assume the cost of operating each type of carriage is 0. Your marketing department has learned that the company has two types of passengers: the well-off and the less well-off. The sizes of these two segments are approximately the same. Assume the total market size is 100. Through a conjoint analysis, the company learned about each passenger type's willingness-to-pay for each type of carriage. The estimates are presented in Table 1. Given a menu of options, each customer chooses the option that gives the customer the highest surplus. If multiple options maximize the customer's surplus, the customer chooses among these surplus-maximizing options the one that gives the highest WTP. Assume the firm has no supply constraint: the firm is able to service the entire market with each type of carriage. a. (2 marks) If the company only operates one type of carriage, which type should the company operate and what are the optimal price and profit? b. (4 marks) What are the optimal prices and profit if the company offers both types of carriages? c. (2 marks) Based on your results so far, which carriage(s) should the company offer and at what price(s)? d. (6 marks) The company has been thinking about new ways to improve profitability. Suppose you are in the 19th century and you are working for a railway company called Monopoly Rail. The company runs a monopoly railway service connecting Liverpool and Manchester. Currently, the company has two types of carriages for its trains: first class and economy class. The economy class offers an okay ride between the two cities, whereas the first class offers an extravagant one. For simplicity, assume the cost of operating each type of carriage is 0. Your marketing department has learned that the company has two types of passengers: the well-off and the less well-off. The sizes of these two segments are approximately the same. Assume the total market size is 100. Through a conjoint analysis, the company learned about each passenger type's willingness-to-pay for each type of carriage. The estimates are presented in Table 1. Given a menu of options, each customer chooses the option that gives the customer the highest surplus. If multiple options maximize the customer's surplus, the customer chooses among these surplus-maximizing options the one that gives the highest WTP. Assume the firm has no supply constraint: the firm is able to service the entire market with each type of carriage. a. (2 marks) If the company only operates one type of carriage, which type should the company operate and what are the optimal price and profit? b. (4 marks) What are the optimal prices and profit if the company offers both types of carriages? c. (2 marks) Based on your results so far, which carriage(s) should the company offer and at what price(s)? d. (6 marks) The company has been thinking about new ways to improve profitability.
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Answer rating: 100% (QA)
a If the company only operates one type of carriage it should operate the first class carriage This is because the welloff segment is willing to pay m... View the full answer
Related Book For
Introduction to Business Law
ISBN: 978-1285860398
5th edition
Authors: Jeffrey F. Beatty, Susan S. Samuelson
Posted Date:
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