Beth Johnson Was Recently Appointed Vice President of Administration in the Sigma

question 27

Essay

Beth Johnson was recently appointed Vice President of Administration in the Sigma Group, a nationwide personal financial planning services firm. Ann Garber, department manager, has just finished reading the most recent memo from VP Johnson, which reads in part:
In order to more efficiently apportion the costs of hard copy duplication, departments will be charged $0.075 per page for all duplicated materials. This new rate replaces the two-tier rate structures of $0.05 and $0.10 per page, and is effective as of the date of this memo. The two tier system was used to charge a higher rate for the more difficult jobs.
"What is she trying to do?" Ann asks. "This new price will drive up my department's duplicating costs so much that we'll have to cut back on how much stuff we have duplicated."
Required:
a. What is the control advantage of any multi-tier pricing (costing) system versus a single price (cost) system?
b. If the new price for duplication reduces total usage of duplicating services, are there any significant disadvantages to such a reduction in usage?

Calculate the effect of price changes using the midpoint formula.

Grasp the concept of price elasticity of demand being different at every point on a linear demand curve.

Recognize how the availability of substitutes affects the price elasticity of demand.

Understand the role of time in determining the elasticity of demand.

---

Definitions:

First-Order Autocorrelation

First-order autocorrelation is a statistical measure indicating the correlation between values in a time series and their immediate predecessors.

Durbin-Watson D Statistic

A statistical tool designed to determine the existence of first-lag autocorrelation in the residuals of a regression analysis.

Regression Analysis

A statistical method for investigating the relationship between a dependent variable and one or more independent variables.

Durbin-Watson Statistic

A measure used in statistics to find out whether autocorrelation at lag one occurs in the residuals after performing a regression analysis.