Author Question: If the amount of net income for the current period is less than the amount of the owner's ... (Read 94 times)

Kikoku · **on:** Jul 6, 2018

If the amount of net income for the current period is less than the amount of the owner's withdrawals, there will be a(n)
a. decrease in the Cash account.
b. increase in the owner's Capital account.
c. decrease in the owner's Capital account.
d. increase in the Cash account.
e. increase in liabilities on the balance sheet.

Question 2

(20 mins.) Anti-trust laws and pricing.

USA Airlines is a major airline carrier for both domestic and international travel. The company guarantees the lowest price ticket for travel within the United States. In order to get the lowest price airfare, the customer needs to book a flight with USA Airlines and show the booking agent a computer-generated quote from any other airline in the country for the same travel route at a lower rate. USA Airlines will match the rate, plus give the customer an additional 10 discount. USA Airlines has entered into a contract with several regional carriers, which requires them to also price below the competition in order to do business with USA Airlines customers. The lowest price ticket guarantee does not apply for travel on Monday mornings and Friday evenings, which are busy travel times for business travelers.

Required:
1. Do these pricing practices of USA Airlines violate any anti-trust laws? Why or why not?
2. Why is USA Airlines not offering a price guarantee for flights on Monday mornings and Friday evenings? Do you agree with this policy? Explain briefly.
3. What other factors should USA Airlines consider before implementing these pricing policies?

al · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

C

Answer to Question 2

1. The company is not practicing price discrimination because all customers are being offered the same prices. The offer is simply restricting the times and locations that the promotion is available but not the individual customers to whom the promotion applies. There is no single customer or customer group that is being discriminated against. It is also difficult for the company to be accused of collusion because the company and its competitors are not conspiring to achieve a price above the market price. The company is most at risk for possible predatory pricing and or collusion with regional airlines. There is nothing that indicates that USA Airlines is pricing below the company's cost, but if it is, it could be seen as a tactic to drive out competition only to raise prices when the industry has fewer competitors.

2. The company is practicing peak load pricing, for its flights on Monday mornings and Friday evenings. These are the times when many business travelers fly. At these peak travel times, prices are relatively demand inelastic, so the company does not want to offer discounted fares.

3. The company should first ensure that its practices are legal. The penalties for any illegal practices could be high enough to force an organization into bankruptcy. Second, the company should consider the ethical implications of its price slashing. Under no circumstances should its low pricing strategies compromise the quality or safety of its operations in order to earn profits. The company should also consider the negative consequences of earning revenues and profits from activities other than ticket prices. For example, is USA Airlines charging fees for checked-in bags and in-flight services that are much higher than other airlines to compensate for low ticket prices? Doing so may ultimately offend and drive away customers.

t.