Quantity discounts marginal unit

Marginal unit quantity discount or multi-block tariffs... 

Given that aU unit quantity discounts increase the average inventory and flow time in a supply chain, it is important to identify how these discounts add value in a supply chain. Before we consider this question, we discuss marginal unit quantity discounts. 

FIGURE 11-4 Marginal Unit Cost with Marginal Unit Quantity Discount... 

In Example 11-8, we evaluate the optimal lot size given a marginal unit quantity discount (see worksheets Example 11-8 and Example 11-8 check in spreadsheet Chapterll-examples7-8). 

Demand for phones at Amazon is 5,000 per month. The holding cost at Amazon is 25 percent and the company incurs a fixed cost of 500 for each order placed. The supplier offers a marginal unit quantity discount with a price of 200 per phone for the first 10,000 phones in an order, a price of 195 for the next 10,000 phones in the order, and a price of 190 for the quantity above 20,000 in the order. How many phones should Amazon order per replenishment ... 

Marginal (or incremental) unit quantity discounts are also referred to as multi-block tariffs. In this case, the pricing schedule contains specified break points qo, qi, q It is not the average... 

Now consider the case in which the manufacturer offers a marginal unit qnantity discount for the plywood. The first 20,000 square feet of any order are sold at 1 per square foot, the next 20,000 square feet are sold at 0.98 per square foot, and any quantity larger than 40,000 square feet is sold for 0.96 per square foot. What is the optimal lot size for Prefab given this pricing structure How much cycle inventory of plywood will Prefab carry given the ordering pohcy ... 

As discussed in Chapter 16, setting a fixed price for all units does not maximize profits for the manufacturer. In principle, the manufacturer can obtain the entire area under the demand curve above its marginal cost by pricing each unit differently based on customers marginal willingness to pay at each quantity. Quantity discounts are one mechanism for price discrimination because customers pay different prices based on the quantity purchased. 

---