Chapter 4: Costing & Pricing in Transportation

Local rates are:

Rates that apply to any rate between two points served by the same carrier. They include full-cost factors for pickup, documentation, rating, billing, and delivery.

What is meant by stowability and handling?

Stowability and handling reflect the cost the carrier will incur in securing and handling the product in the vehicle.

T/F: Two separate concepts in Cost of Service pricing are prices based on average or marginal cost.

TRUE

T/F: While there are many sellers in monopolistic competition, there is some differentiation in the product.

TRUE

What is the definition of value of service pricing?

Value of service pricing is defined as charging what the traffic will bear.

Carrier pricing decisions fall into three categories. The categories are setting prices for a new service, modifying prices over time, and: a. responding to price changes. b. reacting to government policies. c. anticipating future market conditions. d. changing prices in response to government instruction.

A

Three necessary conditions must be met before a seller can practice third-degree price discrimination. The conditions are: buyers must be separated into groups or submarkets according to their elasticities of demand, the seller must possess some degree of monopoly power, and a. the seller must prevent transfer of sales between the groups or submarkets. b. the seller must have "market dominance". c. the buyer must have profit maximization as a goal. d. the buyer must have variable costs that have to be recovered.

A

What are some of the problems which the use of Common Costs raises for Cost of Service Pricing, particularly the Average Cost approach? a. Rates based upon average or fully allocated cost makes it necessary to apportion common costs by some arbitrary means. b. Motor carriers are structured such as to make allocation extremely difficult. c. Rail carriers have difficulty defining their common costs as they have wide spread geographic operations d. All transport firms have significant difficulty with cost concepts due the very nature of their operations

A

For the theory of contestable markets to work, four conditions have to be met: no barriers to market entry, no economies of scale present, consumer willingness to switch between carriers, and a. sellers and buyers of such small size that price or supply cannot be influenced. b. existing carriers prevented from responding to new entrants' lower prices. c. mutual interdependence between various sellers. d. no one seller controls a significant portion of the market.

B

The basic types of rates are class, exception and: a. Mileage b. Commodity c. Standard d. Discount

B

The type of cost created from a situation where the production of one service necessarily entails the production of another service is known as a: a. separable unique cost. b. common cost. c. fixed universal cost. d. variable general cost.

B

Third degree price discrimination is defined as: a. While rarely prosecuted, it is illegal and a misdemeanor versus a felony as defined by the Surface Transportation Board Act b. charging different prices to different buyers who use the same commodity or service c. permissible only when the buyer has requested rebates d. the least serious type of discrimination as versus first degree

B

Under transportation regulation, the amount found in a Tariff as payment to a carrier for performing a given transport service is called a: a. price b. rate c. demand charge d. supply charge

B

Value of service pricing is also called: a. charging a rate which includes a high profit b. charging what the traffic will bear c. charging a price which favors one mode over another d. charging a rate that has shown that shippers will use it to move their traffic

B

Value of service pricing is best defined as: a. pricing based upon common costs b. Pricing based upon what the traffic will bear c. pricing based on marginal costs d. pricing based on average costs

B

What is a skimming price? a. a price meant to skim off the most profit able traffic b. a means to maximize profit until competitors enter the market c. a price which allows a carrier to enter a new market. d. One that allows the carrier to transport only that traffic of the shipper that the carrier feels to be profitable.

B

What is the difference between pure competition and monopolistic competition? a. minimal, as the conditions for each are quite similar. b. under pure competition there are many sellers and the product is homogeneous c. while there are many sellers, there is some differentiation in the product d. not as great as there are with an oligopoly

B

As shown in Figure 4.1 which of the following is not a simplifying assumption? a. Firm's products or services are homogeneous b. only one group of customers c. there are costs which are not the responsibility of the customer d. the firm possess some monopolistic power

C

Price is a concept relating to how post-deregulation transportation firms determine and impose charges for their services. Which is a distinguishing feature of this concept of price? a. the amount found in a Tariff Book as payment to a carrier for performing a transport service b. a lawful charge imposed by a carrier on a commodity movement c. a value or level that is determined based on prevailing market forces d. a charge determined primarily by considering a carrier's costs only

C

The firm is in a decreasing cost industry, and its prices are based upon strict marginal costs. The firm experiences a loss. In this case, for the firm to recover its fixed costs, it must use marginal cost as a floor for its prices, and: a. try to take business away from competing modes and carriers. b. convince its customers to pay more for the services offered. c. use the value of service to determine how high above marginal cost the price should be set. d. ask the government to intervene so they can raise the minimum cost level.

C

There are two separate concepts in Cost of Service pricing. They are: a. head haul, back haul and extent of competition b. commodity and density c. prices based on average or marginal cost d. competition and direction of travel

C

This type of rate applies to or from whole regions, rather than points within a region. a. joint rate b. local rate c. group rate d. incentive rate

C

Value of service pricing is based on the concept which states: a. shippers should pay rates high enough to insure a high profit for the carrier. b. carriers should set prices based on the level of service they offer c. rates should be related to value of the commodity - the higher the value of the commodity the higher the rate should be d. shippers should offer a price that they feel is fair in relation to the service offered.

C

Which of the following is not a condition for pure competition? a. Large number of sellers b. Sellers are small enough that no one can overly influence the market c. Involves a heterogeneous product or service d. Unrestricted entry

C

An oligopoly can be defined as:

Competition between a few large sellers of a relatively homogeneous product that has enough sustitutability (cross elasticity of demand), that each seller must, in pricing decision, take into account competitors' reactions.

The main objective of deregulation in transportation was?

Create market-driven pricing of transportation services free from regulatory intervention.

A profit-maximizing oriented carrier will not set a price in the long-run that would: a. reduce variable costs. b. increase fixed costs. c. increase customer satisfaction with services rendered. d. prohibit the movement of freight or passengers.

D

How is the Relevant Market Structure in transportation described? a. by comparing fixed costs with variable costs b. by determining all the areas which the carrier can serve effectively c. by generally describing all possible origin and destination points for each commodity d. by identifying the relevant market area for one commodity moving between two points

D

The relevant market structure under deregulation is described by a theory which substitutes potential competition for the active participation of many sellers. What is this theory called? a. the law of supply and demand b. marginal utility c. monopolistic competition d. contestable markets

D

Which is correct regarding value-of-service pricing? a. the model is used to determine the lower limit of freight rates b. the model considers the supply side of the transportation pricing function c. the value of the product is considered to be irrelevant in the determination of the freight rate d. the model considers the ability of the commodity to bear a charge

D

T/F: Price is the amount found in a Tariff Book as payment to a carrier for performing a transport service.

FALSE

T/F: Under pure competition, there are many sellers and the product is heterogeneous.

FALSE

T/F: A skimming price is a high price intended to attract a market that is insensitive to price, and it is a means to maximize profit.

TRUE

T/F: The main objective of deregulation in transportation was to create market-driven pricing of transportation services free from regulatory intervention.

TRUE

T/F: Third degree price discrimination is defined as charging different prices to different buyers who use the same commodity or service.

TRUE