Answer to Question #266164 in Accounting for Paige Connor

Question

Examples of price charges per minute by AT&T for long-distance telephone calls within the United States at different times of the day and week are as follows:

  Washington Phil. D.C. Washington, D.C.

D.C. to Phil. to St. louis to L. A.

Peak (8am - 5pm

Monday - Friday) $0.21 $0.22 $0.24

Evenings 5pm - 11pm

Monday - Friday $0.13 $0.13 $0.14

Nights & weekends $0.11 $0.11 $0.12

 a. Are there differences in incremental or outlay costs per minute for AT&T for telephone calls made during peak hours compared to telephone calls made at other times of the day?

b. Why do you think AT&T charges different prices per minute for telephone calls made during peak hours compared to telephone calls made at other times of the day?

Answer 1

Solution:

a.). Yes, there are differences in incremental or outlay costs per minute for AT&T for telephone calls made during peak hours compared to telephone calls made at other times of the day.

The incremental or outlay costs per minute during peak hours are much higher compared to the ones during other times of the day.

 

b.). AT&T charges different prices per minute for telephone calls made during peak hours compared to calls made at other times of the day in order to get the most revenue possible from every customer.

This is a type of price discrimination strategy meant to increase revenue during peak hours since there is high demand compared to other times of the day. During peak hours, many customers make calls regardless of the high rates and AT&T is able to generate more revenues.