Question 1

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.

Accepted Answer

For a contestable market, existing carriers must be prevented from responding to new entrants' lower prices to ensure that new entrants can compete effectively without being undercut.

Question 2

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

Accepted Answer

Value-of-service pricing considers the ability of the commodity to bear a charge, which means that different commodities may have different freight rates based on their value. It does not determine the lower limit of freight rates (A), specifically consider the supply side of the pricing function (B), or consider the value of the product to be irrelevant (C).

Question 3

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.

Accepted Answer

Value of service pricing involves setting rates based on the value of the commodity being transported, with higher rates for higher-value goods.

Question 4

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

Accepted Answer

Group rate applies to or from whole regions, rather than points within a region. It is generally offered to a group of travelers or shippers who are traveling together or shipping large quantities of goods to the same destination.

Question 5

The basic types of rates are class,exception and:
A) Mileage
B) Commodity
C) Standard
D) Discount

Accepted Answer

Commodity rates are a basic type of rate used in transportation and logistics, alongside class and exception rates.

Question 6

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

Accepted Answer

The relevant market structure in transportation is described by identifying the relevant market area for one commodity moving between two points. This involves analyzing the competition, pricing strategies, freight volumes, and operating costs for a particular commodity moving between specific origin and destination points. This allows carriers to effectively compete and provide their services within a specific market segment. Option A focuses on costs, while Option B and C are too general and do not specifically address the market structure of transportation. Therefore, the best choice is D.

Question 7

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

Accepted Answer

Value of service pricing involves charging what the traffic will bear, meaning setting prices based on the perceived value to the customer rather than the cost of service.

Question 8

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

Accepted Answer

A rate is the specific amount charged by a carrier for performing a given transport service as set forth in a Tariff. Prices refer to the general cost of a good or service, and demand/supply charges are not typically associated with transportation regulations.

Question 9

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

Accepted Answer

Cost of Service pricing involves setting prices based on the cost of providing the service, which can be calculated using either average cost or marginal cost methods.

Question 10

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.

Accepted Answer

A common cost is created when the production of one service results in the production of another service, and the cost cannot be separately identified with either service. The other options do not accurately describe this type of cost.

Question 11

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

Accepted Answer

The distinguishing feature of this concept of price is that it is determined based on prevailing market forces, rather than being primarily based on a carrier's costs or set amounts found in a tariff book.

Question 12

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

Accepted Answer

The use of common costs raises problems for cost of service pricing, particularly with the average cost approach, because rates based on average or fully allocated costs require the apportionment of common costs through arbitrary means. This can be difficult and may result in inaccuracies in pricing. The other options listed (B, C, and D) are potential issues for transport firms, but they are not specific to the use of common costs in cost of service pricing.

Question 13

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.

Accepted Answer

In a decreasing cost industry, the marginal cost of producing each unit decreases as the output level increases. Therefore, using marginal cost as a floor for prices would mean that prices would decrease as the output level increases, which would lead to an increase in demand. To recover fixed costs, the firm must set prices high enough to cover both its marginal costs and fixed costs. This can be done by using the value of the service provided to determine how much higher than the marginal cost the price should be set. This would help the firm maintain its competitiveness while also ensuring that it recovers its fixed costs. Option A is not feasible in a decreasing cost industry, as it would lead to a price war and may not necessarily help the firm recover its fixed costs. Option B may not be possible, as the firm's prices are already based on strict marginal costs. Option D is not a viable option, as it involves government intervention and may not be appropriate in a free market economy.

Question 14

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

Accepted Answer

Under pure competition, there are many sellers offering a homogeneous product, whereas in monopolistic competition, products are differentiated.

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.

Accepted Answer

The condition that the seller must prevent transfer of sales between the groups or submarkets is necessary to ensure that buyers cannot take advantage of different prices in different submarkets. If buyers are able to transfer their purchases between submarkets, the seller cannot successfully price discriminate. The other choices are either incorrect or irrelevant to the conditions needed for third-degree price discrimination.

Question 16

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.

Accepted Answer

A profit-maximizing carrier will avoid setting prices that prohibit the movement of freight or passengers, as this would lead to a loss of revenue and market share.

Question 17

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

Accepted Answer

Third degree price discrimination involves charging different prices to different buyers who use the same commodity or service. This is permitted under certain conditions, such as when the buyers belong to different market segments with different elasticities of demand. It is not illegal, unlike first-degree price discrimination, where each buyer is charged their maximum willingness to pay. It is also different from rebates, which are voluntary discounts offered by the seller and requested by the buyer.

Question 18

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

Accepted Answer

The theory described in the question is known as "contestable markets." This theory proposes that even in the absence of many active sellers, the threat of potential competition can effectively discipline the behavior of a single dominant firm. This can lead to outcomes similar to those observed in highly competitive, perfectly contestable markets, even where there are few actual competitors.

Question 19

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.

Accepted Answer

A skimming price is a strategy where a company sets a high price for their product or service initially to maximize profits before competitors enter the market. This allows the company to make the most profit from early adopters who are willing to pay a premium price. After competitors enter the market, the company may lower its prices to remain competitive.

Question 20

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.

Accepted Answer

Carrier pricing decisions also involve responding to price changes made by competitors or market conditions.

Quiz 4: Costing and Pricing in Transportation

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

Which is correct regarding value-of-service pricing?

Value of service pricing is based on the concept which states:

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

The basic types of rates are class,exception and:

How is the Relevant Market Structure in transportation described?

Value of service pricing is also called:

Under transportation regulation,the amount found in a Tariff as payment to a carrier for performing a given transport service is called a:

There are two separate concepts in Cost of Service pricing.They are:

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:

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?

What are some of the problems which the use of Common Costs raises for Cost of Service Pricing,particularly the Average Cost approach?

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:

What is the difference between pure competition and monopolistic competition?

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 profit-maximizing oriented carrier will not set a price in the long-run that would:

Third degree price discrimination is defined as:

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?

What is a skimming price?

Carrier pricing decisions fall into three categories.The categories are setting prices for a new service,modifying prices over time,and: