Guest Post: Odd Quantity Discounts

Our Guest Post today comes from Howard Weiss, who is Professor of Operations Management at Temple University. 

Several of the models in OM assume proportionality, so when I get to break-even analysis (Supp.7), I explain that one of the assumptions is that the cost/unit for each unit is identical and the revenue/unit is identical for each unit. I like to ask the students to give me examples where it would not be the case that revenue is directly proportional to the number of units sold. The bulk of the examples the students cite are due to quantity discounts. I explain that our basic breakeven, transportation and LP models (Modules C and B) do not allow for quantity discounts but that when examining inventory (Chapter 12) we will see models that include quantity discounts.
What I like to bring into class though, for amusement, are odd instances of quantity “discounts”. Very recently I was in a Houligan’s restaurant and saw the cost per wing was more for 10 wings than for 6 wings. Jack’s Restaurant and Bar in NYC currently has what I think is an interesting pricing option for Tapas when comparing 3, 4, and 5 tapas. Lancer’s is a very nice diner near Philadelphia. It has what I think is an interesting pricing strategy when you compare the price of 12 oz. for two products with the same cost for 8 oz. glasses.

I usually delay the next example until I teach LP. Stroehmann’s bread is interesting. The picture below is from a loaf of bread from a few years back. Stroehman’s used to report nutrition for both 1 and 2 slices. The newer packages only report the calories in one slice. Two slices of bread have 110 calories whereas one slice has 50 calories. Of course, the calories should be proportional.

Best Buy once ran a sale where buying 100 DVDs was less expensive than buying 50 DVDs. Not less expensive per DVD but rather less expensive in total cost! I always encourage my students to be alert for these odd quantity discounts.