The Danish firm a2 Systems /S sells sales Service stations that use the software

Question

The Danish firm a2 Systems /S sells sales Service stations that use the software typicaly offer lower prices in the moming than stealing more money from your in the and even raise prices when competing stations with very low prices have long lines In an artiole in the Wall Street Joumal, the firm's CEO noted: This is not a mater of oustomer. I's about making margin on people who don't care, and giving away margin to people who do care. Source: Sam Schechner, "Why Do Gas Station Prices Constantly Change? Blame the Algorithm, Wal Street Joumal, May 8,2017 O A. The CEO means the inorease in price over cost B. "Margin. refers to disposable O C. He means addtional ost bom produong additional output O D. The m's CEO is talking about a discretionary time in the day. Briefly explain how these pricing strategies "make margin on austomers who dont care and "give away margin on austomers who do care O A. These pricing strategies use price discrimination to charge oustomers whose demand is more inelastic higher prices OB. This type of pricing strategy uses arbitrage to charge austomers who are les price sensitive higher prices O C. These pricing use price disorimination to charge customers so that those who have greater elasticies pay higher prices O D. This type of price strategy uses arbitrage to charge customers who have a greater willigness to pay higher prices

Explanation / Answer

Q1) Answer: A

This is the excess price charged over cost. The CEO indicates such additional price, which is applicable in particular times. Margin = Selling price per unit – Cost per unit.

Q2) Answer: A

Inelastic demand means change in price has little effect on quantity consumption. In such case price of product could be increased, because those demander should not stop purchasing. Discrimination of price in different times indicates that those who are purchasing at higher price must have inelastic demand. The strategy is to charge them more and to make the price level down for elastic demanders.      

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