ETS Chapter 10 Flashcards
(7 cards)
What are the financial consequences of marginal cost pricing?
if revenues do not cover fixed costs, requiring subsidies or alternative pricing strategies.
Example: Public transport systems often receive government funding to cover losses from low fares.
How does marginal cost pricing affect economies of scale?
Marginal cost pricing can be challenging in industries with economies of scale, where fixed costs dominate, making cost recovery difficult.
Example: Rail transport has high infrastructure costs, making marginal pricing less sustainable without subsidies.
What happens when there are decreasing economies of scale in transportation?
costs per unit rise as output expands, leading to inefficiencies and higher long-term costs.
Example: A small airline with limited flights faces higher per-passenger costs compared to a large carrier.
How do increasing economies of scale impact pricing?
Increasing economies of scale reduce per-unit costs as production increases, making marginal cost pricing more feasible.
Example: A shipping company lowers freight rates as container volume increases, spreading costs over more shipments.
What is scarcity pricing in transportation?
Scarcity pricing adjusts prices based on capacity constraints to manage demand efficiently.
Example: Airlines increase ticket prices as seats become limited on a flight.
How does time-dependent scarcity pricing work?
Time-dependent scarcity pricing charges higher rates during peak periods and lower rates during off-peak hours.
Example: Electricity providers charge more during high-demand hours and less at night.
Why is marginal cost pricing controversial in transportation economics?
Marginal cost pricing is debated because it often fails to cover total costs, requiring government intervention or alternative revenue models.
Example: Road tolls may need additional taxes to fund highway maintenance despite marginal pricing policies.
