Question

Suppose Amelia and Adam open a taco shop, Taco Diva, one of the few taco joints in a small, Midwestern town.

• (a) Give a good example of how they might set prices by acquisition. How might economies of scope and scale be impacted?
• (b) Give a good example of how they might set prices by advertising. Are there pitfalls to avoid?
• (c) When setting prices, firms must consider consumers behavioral concerns. Describe a hypothetical scenario regarding price changes and behavioral economics (there are several examples in the book). How might you mitigate this concern?
• (d) Give me a solid price discrimination scheme for this business using direct PD.
• (e) Give me a solid price discrimination scheme for this business using indirect PD.  
• (f) What condition must be met for these PD schemes to be successful?

Answer 1

Ans:- (30) Jacob and Kendall should invariably Survey the market and the other taco shops in and around Midwestern town, Preferably they should just try and review the tacos of the nearby shops. That review should include both aspects of quality and value for money. This, should act as their data for setting up prices : say, lower than the Shops maintaining very high standards of food quality. This, would ensure some initia) customers to try out some tacos at lower price. Though the price must be inclusive of the production costs, taxes if applicable small producers' margin. Lower price than the other standard taco shops would Keep the margins low initially but since it is and a small shop with low establishment cost, good quality of tacos would ensure many customers at lower prices. Thus economies of scope would be impacted. (b) I would begin with the pit falls first. For such small taco shop initial high

Costs 0% next odvertising costs can lead to huge sunk losses. Instead a discount, hoarding of first 100 tacos sold free and the next 100 at a discount of 50.1 can attract customers If it is seen even the 100 being sold at the same rate as the first they are assured of a good feedback. Thus, further advertising costs can be incurred as a small percentage of their revenue. say, 5% of monthly revenue as advertising costs. If this later prices and hence advertising prices con be increased. works (c) The above Strategy would also belp them Understand Consumer behavioral concerns. for example : say according to the strategy they had veg tacos and non-veg tacos being sold at discounts (1st 200); since the price is the same veg taco would have proportionately more veggies than meat in the non-veg taco. Now, analysing how many of each types were sold Kendall and Jacob would understand the preferences of their target customers and thus take the

Student discounts on production of current customers decisions into account while Setting prices along with choosing and artering products (d) let me give two examples: Firstly, Kendall and Jacob should allow Institute Identity card Secondly, Kendall and Jacob sell tacos all over the city and distribute pamphlets giving address and contact numbers of their shop. They should allow heavy discounts in the areas which are close to their shop and also to the famous taco Shops (e) Kendall and Jacob must have their Speciality. In the initial phase the price of that taco should be set a little lower to push that more. As it becomes a sensation, by making slight changes to the Special taco Calmost keeping it the same) price of that must be set higher than the rest even if production cost is lower Those slight changes would justify the price hike.