Deck 4: Costing and Pricing in Transportation

Question 1

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

Answer 1

A

Question 2

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.

Answer 2

B

Question 3

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) which allows the carrier to transport only that traffic of the shipper that the carrier feels to be profitable.

Answer 3

B

Question 4

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 5

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 6

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 7

This type of rate applies to or from whole regions,rather than points.

A) joint rates
B) local rates
C) group rates
D) incentive rates

Question 8

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 firms who use the same commodity
C) permissible only when the buyer has requested rebates
D) the least serious type of discrimination as versus first degree

Question 9

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 10

What is the difference between pure competition and monopolistic competition?

A) slight as the conditions for each are quite similar.
B) under pure competition there are many sellers and the product is homogeneous
C) while there many sellers, there is some differentiation in the product
D) not as great as there are with an oligopoly

Question 11

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

Question 12

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 13

Price is a concept relating to how post-deregulation transportation firm,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 14

The basic types of rates are class,exception and:

A) mileage
B) commodity
C) standard
D) discount

Question 15

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 price their product based on the level of service the carrier offers
C) rates should be related to value of the commodity, the higher to cost 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 16

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 17

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 18

Value of service pricing is also called:

A) charging a rate which includes a high profit
B) charging all 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 19

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 20

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 21

Please explain social responsibility pricing.

Question 22

Distinguish between the terms "rates" and "price" as relates to transportation?

Question 23

Define and discuss Cost of Service Pricing.

Question 24

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

Question 25

What is meant by stowability and handling?

Question 26

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

Question 27

What is the definition of value of service pricing?

Question 28

Local rates are:

Question 29

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 30

What are the most common mistakes in carrier pricing?

Question 31

The main objective of deregulation in transportation was?

Question 32

Which of the following is not a condition for pure competition?

A) Large number of sellers
B) Sellers and buyer are small enough that no one can overly influence the market
C) Involves a heterogeneous product or service
D) Unristricted entry

Question 33

There are several types of special rates and special rates.Pick five,define and discuss.

Question 34

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

Question 35

Value of service pricing is best defined as:

A) pricing based upon common costs
B) what the traffic will bear
C) picing based on marginal costs
D) pricing based on average costs

Question 36

An oligopoly can be defined as:

Question 37

Define and discuss variable or marginal cost.

Question 38

What is the current status of rates under deregulation?

Question 39

Define and discuss Value of Service Pricing.

Question 40

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

Question 41

How does one determine a class rate?