Consider the Pricing Strategy Outlined in the Following Excerpt About

question 23

Multiple Choice

Consider the pricing strategy outlined in the following excerpt about a "smart" vending machine and use it to answer the following questions:
Taking full advantage of the law of supply and demand,the Coca-Cola Company has quietly begun testing a vending machine that can automatically raise prices for its drinks in hot weather."This technology is something the Coca-Cola Company has been looking at for more than a year," said Rob Baskin,a company spokesman,adding that it had not yet been placed in any consumer market....The process appears to be done simply through a temperature sensor and a computer chip,not any breakthrough technology,though Coca-Cola refused to provide any details yesterday.While the concept might seem unfair to a thirsty person,it essentially extends to another industry what has become the practice for airlines and other companies that sell products and services to consumers.The falling price of computer chips and the increasing ease of connecting to the Internet has made it practical for companies to pair daily and hourly fluctuations in demand with fluctuations in price-even if the product is a can of soda that sells for just 75 cents.

-If a "smart vending machine" were placed outside a classroom and it took other factors in addition to temperature into account when setting its price,what would likely happen to prices for caffeinated beverages during spring semester's exam week?

• A) Most students elect to attend class during exam week,so we would expect lower demand for cola.
• B) Students tend to run out of funds near the end of the academic year,so we would expect them to be very insensitive to changes in price.
• C) Demand for chemical alertness would likely be higher during this time and the weather would be warmer,so we would expect the price of cola to be higher.
• D) This is an area that students visit on a regular basis,so we would expect them to notice the fluctuating prices and make alternative plans if they have price-inelastic demand.
• E) The supply of cola is consistent from week to week,so we would expect the demand for cola to remain unchanged.

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Definitions:

FIFO Assumption

The First-In, First-Out method is an accounting assumption used to manage inventory and cost of goods sold, assuming the first items placed into inventory are sold first.

Subsidiary Shares

Shares owned by a parent company in a subsidiary, representing a controlling interest in that subsidiary.

Common Shares

Shares of stock representing ownership in a company, giving holders voting rights and a share in the company’s profits through dividends.

Stockholders' Equity

The residual interest in the assets of an entity after deducting liabilities, representing ownership interest held by stockholders.