According to a New York Times article, shoppers from New York City have played a
ID: 1221124 • Letter: A
Question
According to a New York Times article, shoppers from New York City have played a game of "retail arbitrage" by shopping at malls in Northern New Jersey, a state where there is no tax on clothing and shoes. Even after accounting for transaction costs, shoppers could still save money on their clothing and footwear purchases. Is the term "arbitrage" correctly used here? Why or why not?. The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of t e t e 1^higher price for those who purchase seats in the front, around this an example of price discrimination? Why or why no Why is price discrimination common in the airline industry? if the selling price of a firm's product $200 and the average cost of this product is $150, what is the firm mark-up?Explanation / Answer
1. Arbitrage involves buying goods at one market at a lower price and selling it in another market at a higher price. In this case people are just shopping but not reselling, so this is not an arbitrage.
2. Yes, this is a price discrimination case because athenian theatre is charging different price to differnt consumers according to thier willingness to pay.
3. Price discrimination is a common phenomenon in airline industry. The airline dicrimnates on the basis of time interval in which ticket is booked. It reserves low price tickets for people who are most sensitive to price change, and they book thier ticket in advance. Airline price discrimantes so that it can maxmise its revenues by charging lower price from people who have a lower willingness to pay and a higher price from people who have a higher willingness to pay and also ensures that the seats are filled up by fluctuationg the price.
d. Markup over Average cost =200-150
=$50
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