Question

The consulting agency's client traditionally charges $1.50/litre for wastewater treatment. On the average their facility processes 26 million litres per day. The variable costs per litre is $1. The consulting agency has decided to try using yield management approaches for their client to reduce surge demand. Since their facility is operating at 85% capacity on the average each day, if wastewater surges past the average 26 million litres per day, the source of the surge will be identified using newly installed sensors so that source can be charged a premium price of $2/litre. While if under the average 26 million litres per day, the charge will be reduced to $1.30/litre for those served. The plan considers that higher charges will have sources with regular surges seeking to reduce wastewater into their system. They estimate 8 million litres per day comes from sources with regular surge demand issues while 14 million litres per day is from sources without this issue. Variable costs will not change. What is the single price revenue and the two price revenue? Should they do? Single price charges $13 Million, with two prices charges $12.2 Million. The client should pursue this plan. Single price charges $13 Million, with two prices charges $12.2 Million. The client should not pursue this plan. Single price charges $39 Million, with two prices charges $34.2 Million. The client should pursue this plan. Single price charges $39 Million, with two prices charges $34.2 Million. The client should not pursue this plan.

Answer 1

Single Price Charge/L	1.5
Average Processing/Day	26
Single Price Charge - Total	39
Two Price Model	Demand	Price	Charge
Surge Demand (lit)	8	2	16
Normal Demand (Lit)	14	1.3	18.2
Two Price Model - Charge			34.2

So the Revenue falls under the two price model from 39 to 34.2, Client should not pursue this strategy of two pricing