Multiple Choice
According to the rational rule for employers, when should a firm hire an additional worker?
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0. Basic Principles of Economics
People Respond to Incentives
Multiple Choice
Why might firms use loyalty programs and subscription pricing?
A
To create incentives for repeat purchases, increase customer retention, and raise lifetime value.
B
To comply with government regulations requiring firms to offer bundled pricing or rewards.
C
To raise short-term profits by charging higher prices to loyal customers.
D
To reduce firms’ marginal cost of production by lowering input usage.
Verified step by step guidance1
Understand the purpose of loyalty programs and subscription pricing: these are marketing strategies used by firms to encourage customers to make repeat purchases and remain engaged with the brand over time.
Recognize that loyalty programs typically offer rewards or discounts to customers who frequently buy from the firm, creating an incentive to choose that firm over competitors.
Know that subscription pricing involves charging customers a recurring fee, which helps firms secure a steady revenue stream and fosters ongoing customer relationships.
Analyze how these strategies increase customer retention by making it more attractive for customers to stay with the firm rather than switch to others.
Connect these points to the concept of customer lifetime value, which is the total revenue a firm expects to earn from a customer over the entire duration of their relationship.
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