Deck 4: Costing and Pricing for Transportation

Question 1

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

Answer 1

by identifying the relevant market area for one commodity moving between two points

Question 2

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

Answer 2

under pure competition there are many sellers and the product is homogeneous

Question 3

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

Answer 3

group rate

Question 4

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.

Question 5

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.

Question 6

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.

Question 7

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.

Question 8

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

Question 9

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

Question 10

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

Question 11

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.

Question 12

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

Question 13

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

Question 14

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

Question 15

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.

Question 16

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

Question 17

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

Question 18

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.

Question 19

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.

Question 20

The basic types of rates are class, exception and:

A) Mileage
B) Commodity
C) Standard
D) Discount

Question 21

What is the current status of rates under deregulation?

Question 22

What is the definition of value of service pricing?

Question 23

There are several types of special rates. Choose any five and define.

Question 24

What is meant by stowability and handling?

Question 25

Describe the three categories of the major pricing decisions made by carriers.

Question 26

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

Question 27

As shown in Figure 4.1 in text book...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

Question 28

Define and discuss Value of Service Pricing.

Question 29

Define and discuss Cost of Service Pricing.

Question 30

An oligopoly can be defined as:

Question 31

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

Question 32

Distinguish between the terms "rate" and "price" as they relate to transportation?

Question 33

Local rates are:

Question 34

Define third degree price discrimination and explain the two necessary conditions before it can be practiced? Does this practice fit any one mode more than any other?

Question 35

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

Question 36

A pricing objective that aims to increase cash flow through the use of low prices is referred to as:

A) Profit maximization
B) Skimming pricing
C) Penetration pricing
D) Survival-based pricing

Question 37

Commodity rates are also referred to as:

A) Freight all kinds rates
B) Aggregate tender rates
C) Loading allowances
D) Price indices

Question 38

Define and discuss variable or marginal cost.

Question 39

The main objective of deregulation in transportation was?

Question 40

Discuss establishing carrier pricing objectives and identify the areas in which objectives can be set.

Question 41

How does one determine a class rate?

Question 42

What are the most common mistakes in carrier pricing?

Question 43

Define pricing objectives, and give 3 of the 7 types of pricing objectives listed in the book

Question 44

Please explain social responsibility pricing.