Deck 12: Pricing Concepts and Management

Question 1

What are the terms of F.O.B. pricing?

Answer 1

Geographic pricing involves reductions for transportation costs or other costs associated with the physical distance between buyer and seller. Prices may be quoted as F.O.B. (free-onboard) factory or destination. An F.O.B. factory price indicates the price of the merchandise at the factory, before it is loaded onto the carrier, and thus excludes transportation costs. The buyer must pay for shipping. An F.O.B. destination price means the producer absorbs the costs of shipping the merchandise to the customer. This policy may be used to attract distant customers. Although F.O.B. pricing is an easy way to price products, it is sometimes difficult to administer, especially when a firm has a wide product mix or when customers are widely dispersed. Because customers will want to know about the most economical method of shipping, the seller must be informed about shipping rates.

Question 2

Which of the following products is most likely to have an inverted C-shaped demand curve?

A) Visit to the Dentist
B) Eternity perfume
C) Starbucks coffee
D) Pillsbury cake mix
E) Ford Escape

Answer 2

B

Question 3

If Wilson Sporting Goods faces a standard demand curve that exists for most products, as it raises the price of its tennis rackets, the

A) quantity demanded goes down.
B) demand remains constant.
C) quantity demanded increases.
D) demand increases.
E) breakeven increases.

Answer 3

A

Question 4

How can transfer pricing be calculated? Give three alternatives.

Question 5

A graph of the quantity of products marketers expect to sell at various prices if other factors remain constant is a

A) price graph.
B) supply curve.
C) price/quantity graph.
D) marginal revenue curve.
E) demand curve.

Question 6

Identify and describe the major types of discounts used for business markets. Then explain the reasons for using each type.

Question 7

What does the demand curve for a prestige product look like?

A) It is a straight line where the quantity sold continues to increase as the price of each product increases.
B) It is a curve where the highest and the lowest prices yield the greatest quantity sold and mid-range prices produce the fewest sales.
C) It forms a curve where the greatest quantity sold comes at a medium price and the quantities fall as the price increases or decreases.
D) It forms a straight vertical line because of the prestige of the product, and quantity sold will remain stable regardless of the price.
E) It slopes from left to right at a very mild slope; that is, as quantity increases, price decreases slowly.

Question 8

Why is the marginal revenue of a product important to the marketer?

Question 9

What are the differences among value-conscious, price-conscious, and prestige-sensitive customers?

Question 10

For most products, a(n) ____ relationship exists between the price of a particular product and the quantity demanded.

A) inelastic
B) inverse
C) positive
D) unknown
E) elastic

Question 11

French Quarter Inns drops the price of a suite from $225 to $195 per night and experiences a reduction in the quantity of rooms demanded of an average of five per night. This is an indication that suites at this hotel are apparently an example of a(n) ____ product.

A) reverse-demand
B) inferior
C) standard
D) secondary-demand
E) prestige

Question 12

What are the implications of a downward-sloping demand curve?

Question 13

Explain what is meant by price elasticity of demand.

Question 14

If Seagram's marketers found that the firm's Crown Royal bourbon was a prestige product and raised its price, which of the following would most likely happen?

A) The quantity demanded would immediately fall.
B) The quantity demanded would always increase.
C) Above some price level, the quantity demanded would begin to decrease.
D) The demand curve for the product would always shift to the right.
E) The demand curve for the product would always shift to the left.

Question 15

How would pricing decisions differ for a business in an oligopolistic market structure as opposed to a monopolistic market structure?

Question 16

Identify and describe the major factors that affect pricing decisions.

Question 17

What are reference prices and how do customers use them? What is the difference between internal and external reference prices?

Question 18

When marketers at Consolidated Mustard Company tried to determine demand for their product, they found that at 50 cents, consumers wanted 2,000 jars; at $1.00, they wanted 6,000 jars; and at $1.50, they wanted 4,000 jars. What can Consolidated conclude?

A) Consolidated did poor market demand research.
B) Consolidated has an elastic product.
C) Consolidated has an inelastic product.
D) Consolidated mustard is a prestige good.
E) Consolidated mustard has a normal demand curve.

Question 19

For most firms in the United States, demand curves are

A) upward sloping.
B) completely horizontal.
C) completely vertical.
D) c-shaped.
E) downward sloping.

Question 20

If fixed costs = $6,000, selling price = $10, and variable costs per unit = $5, what is the breakeven point in units and in dollar sales volume?

Question 21

A measure of sensitivity of demand in relation to changes in price is

A) a demand curve.
B) a prestige graph.
C) marginal analysis.
D) price elasticity of demand.
E) quantity elasticity.

Question 22

Michelin notices that when the number of tires it sells increases from 1,000,000 to 1,000,001, total revenue rises $35. The $35 represents the firm's

A) average revenue.
B) marginal revenue.
C) price elasticity.
D) average variable revenue.
E) average total cost.

Question 23

At what point does a firm maximize profit?

A) The point at which marginal cost equals marginal revenue
B) The point at which the firm sells its product at the highest price
C) The breakeven point plus the adjusted marginal cost
D) The point at which marginal profits equal marginal revenue
E) The point at which marginal cost equals marginal profits

Question 24

If Carnival Cruise Lines increased the price of its seven-day cruise package by 10 percent and, as a result, experienced a 20 percent decline in customer bookings, Carnival's demand would be

A) steady.
B) inelastic.
C) elastic.
D) prestige.
E) marginal.

Question 25

The Palasi Candy Company is a small business located in the northeastern United States. The owner of Palasi Candy is calculating the projected costs for the coming year. There is rent for the building, salaries for the retail employees, raw materials of sugar, chocolate, and other ingredients, wrappers for packaging of individual pieces of candy, boxes, and radio advertising. Palasi's ______ are most likely to be the raw materials of sugar, chocolate, and other ingredients, as well as the wrappers.

A) sunk costs.
B) variable costs.
C) direct costs.
D) fixed costs.
E) marginal costs.

Question 26

If Colgate-Palmolive wants to maximize profit on its toothpaste, it should operate at the point where

A) total costs and total revenues are equal.
B) marginal revenue is at its highest level.
C) marginal revenue exceeds marginal cost.
D) marginal revenue equals marginal cost.
E) demand is most elastic.

Question 27

If a company increased its price from $100 to $120 and the quantity demanded fell by 40 percent, the price elasticity of demand for this product is

A) 2.
B) 1/2.
C) − 1/2.
D) − 2.
E) 4.

Question 28

Marginal analysis involves examining

A) what happens to a firm's costs and revenues when production is changed by one unit.
B) what happens to a firm's revenues when one more product is sold.
C) what happens to a firm's costs when one more unit is produced.
D) the difference between marginal revenue and total revenue.
E) the difference between marginal cost and total cost.

Question 29

If Roberts Electronics finds that the average total cost of its radar detectors and the marginal cost of its radar detectors are both $85, then

A) its marginal costs are falling.
B) average total cost is at its maximum.
C) average total costs are rising.
D) demand is elastic.
E) average total cost is at its lowest level.

Question 30

If Pacific Power and Light increased its rates by 10 percent and experienced a 2 percent reduction in the demand for power, the demand would be

A) elastic.
B) minimal.
C) minor elasticity.
D) variable.
E) inelastic.

Question 31

If a product has an inelastic demand and the manufacturer raises its price,

A) total revenue will increase.
B) quantity demanded will decrease.
C) the demand schedule will shift.
D) the demand will become more inelastic.
E) total revenue will decrease.

Question 32

Which of the following statements about price elasticity is false ?

A) Steak is an example of a product that has an elastic demand for most people, because when price goes up quantity demanded goes down proportionally more.
B) Elasticity of demand is the relative responsiveness of a change in quantity demanded to changes in price.
C) If marketers can determine price elasticity, then setting prices at optimum levels is much easier.
D) When price is raised on a product that has an inelastic demand, then total revenue will decrease.
E) A product like electricity has an inelastic demand.

Question 33

Dividing the percentage change in quantity demanded by the percentage change in price gives the

A) prestige demand curve.
B) breakeven point.
C) marginal cost curve.
D) price sensitivity curve.
E) price elasticity of demand.

Question 34

If a firm currently produces 2,500 products per month and decides to produce 2,501, it will incur

A) more fixed costs.
B) higher average fixed costs.
C) fewer variable costs.
D) a marginal cost.
E) higher average variable costs.

Question 35

Which of the following is most likely to have an inelastic demand curve?

A) Automobile
B) Vacation
C) Nonelective surgery
D) Recreational vehicle
E) Computer

Question 36

The owner of Big Bike Motorcycles is opening a new retail location. Which of the following is most likely to be a fixed cost for Big Bike Motorcycles?

A) Retail personnel salaries
B) Advertising on Facebook
C) Building Rent
D) Electricity
E) Transportation of sold bikes

Question 37

Ethan is an operations unit manager for Morningstar Foods. So far in developing his monthly budget, he has identified the following costs: Overhead at $120,000; Packaging at $70,000; Advertising at $60,000; Salaries at $400,000; Food production at $90,000, and Distribution at $22,000. The fixed costs in this situation would be

A) overhead, packaging, advertising, salaries, food production, and distribution
B) overhead, packaging, advertising, salaries, and distribution
C) overhead, advertising, distribution, and salaries
D) overhead, advertising, and salaries
E) overhead

Question 38

Roberts Electronics calculates that if it produces 15 radar detectors, its costs are $1,500, and if it produces 16 radar detectors, its costs are $1,590. In this instance, $90 is the firm's ____ cost.

A) average
B) fixed
C) variable
D) marginal
E) average variable

Question 39

At the breakeven point,

A) the money a company brings in from selling products equals the amount spent producing the products.
B) the total fixed costs are exactly equal to the total variable costs.
C) profits are exactly equal to the difference between revenue and total variable costs.
D) the marginal revenue of a product is exactly equal to the marginal cost of producing one more unit.
E) the marginal cost curve and the average cost curve will be identical for a particular product.

Question 40

When marginal cost is equal to marginal revenue, the firm should

A) produce more to increase profits.
B) produce less to decrease total costs.
C) stop producing additional units to maximize profits.
D) provide discounts to encourage purchases.
E) intensify distribution to increase sales.

Question 41

Duds and Suds is a bar with a country and western atmosphere. In addition to the bar, Duds and Suds has a gift shop that sells western clothing with its logo. Norman is the owner of the business and has recently enacted temporary price reductions through clearance sales, discounts, and nightly drink specials. What is Norman most likely trying to do?

A) raise cash quickly.
B) decrease costs.
C) increase profitability.
D) run off the competition.
E) create a value image.

Question 42

A company trying to position itself as value oriented should not

A) set prices that are reasonable relative to product quality.
B) use premium pricing for its products.
C) set prices similar to those of its competitors.
D) use any advertising for its products.
E) consider costs when determining the price of products.

Question 43

If the product price is $100, average variable cost $40 per unit, and the total fixed costs are $120,000, what is the breakeven point?

A) 500 units
B) 2,000 units
C) 1,200 units
D) 300 units
E) 3,000 units

Question 44

The Highland Racquet Club found that with annual fixed costs of $60,000, its breakeven point is 2,000 members when the membership charge is $60 per person per year. What is the variable cost per person for Highland?

A) $45
B) $50
C) $30
D) $25
E) $40

Question 45

To maintain market share and revenue in an increasingly price-sensitive market, companies have focused on quality, used labor-saving technologies, and used efficient manufacturing processes. These tactics have provided gains in productivity that have translated into ____ for the consumer.

A) higher costs for the company and higher prices
B) higher costs for the company and lower prices
C) lower costs for the company and lower prices
D) lower costs for the company and higher prices
E) no change in the costs for either the company or

Question 46

Which factor is least likely to affect pricing decisions?

A) Competitive prices
B) Legal and regulatory issues
C) Organizational and marketing objectives
D) Customers' interpretation and response
E) Shifting stock values

Question 47

In the long run, the J. F. Smucker Company must view ____ as the absolute lowest price for its Jif brand peanut butter.

A) a 10 percent return on investment
B) product development costs
C) total costs
D) advertising expenditures
E) Nestlé's prices

Question 48

To determine the breakeven point in units, divide the fixed costs by

A) total costs.
B) variable costs time price.
C) price minus variable costs.
D) price per unit.
E) total revenue minus fixed costs.

Question 49

Jared is developing a business plan for a new type of bicycle helmet. He is interested in finding the point at which the costs of producing the helmet will equal the revenue earned from selling the product. Jared is interested in finding the

A) elasticity of demand.
B) breakeven point.
C) variable costs.
D) price elasticity.
E) the sum of fixed costs.

Question 50

What assumption does breakeven analysis make that limits its overall usefulness?

A) It focuses on how to achieve a price objective.
B) It assumes a company wants to gain a certain market share.
C) It relies on demand for a product being inelastic.
D) It focuses only on competitive factors and not costs.
E) It assumes demand is elastic for the product.

Question 51

Since Victoria's Secret has decided to use nonprice competition, it distinguishes its brand through all but which of the following?

A) distinctive product features.
B) exceptional service.
C) rebates.
D) variety and selection.
E) product quality and style.

Question 52

Marketers generally view ____ as the minimum price a product can be sold for.

A) fixed costs
B) variable costs
C) profits
D) costs
E) moderate losses

Question 53

Abby is marketing consultant who specializes in small businesses. Her current client is very interested in estimating the costs for the coming year, in order to find the breakeven point. Abby knows this is an important financial statistic because below the breakeven point, the firm is operating

A) with fixed costs only.
B) with minimal variable costs.
C) with no revenue.
D) with minimal profit.
E) at a loss.

Question 54

For most consumers, there is an assumed relationship between

A) price and quality.
B) value and cost.
C) internal and external reference prices.
D) value and price consciousness.
E) prestige prices and value.

Question 55

A certain location of O'Charley's Restaurant has annual fixed costs of $200,000. If an average tab at the restaurant is $60 and the variable costs per tab is $20, how many groups of customers must O'Charley's serve per year in order to break even?

A) 2,000
B) 5,000
C) 10,000
D) 3,333
E) 2,500

Question 56

Which of the following is not a major factor for firms making price decisions?

A) Costs
B) Competition
C) Previous sales
D) Channel member expectations
E) Legal and regulatory issues

Question 57

Suppose managers at Caterpillar have determined the costs associated with producing hay balers are equal to the price that they charge for the hay balers. This indicates that Caterpillar is producing at the ____ point.

A) breakeven
B) marginal revenue less than marginal cost
C) profit margin
D) competitive price
E) profit maximizing

Question 58

Mars Petcare is one of the world's largest pet food manufacturers.  If the strategic goal for Mars Petcare in the coming year was to ___________ in North America, it should use temporary price reductions.

A) increase the number of competitors.
B) gain market share.
C) decrease volume sold.
D) increase revenue per item.
E) decrease the number of competitors.

Question 59

Premium-priced products are usually marketed through

A) complex marketing channels.
B) intensive or selective distribution.
C) exclusive or intensive distribution.
D) exclusive distribution only.
E) selective or exclusive distribution.

Question 60

Markum Industries determines that for its air compressors the following results are achieved at a price of $250: total costs = $250,000; variable costs per unit = $100; fixed costs = $175,000. Given these figures, Markum would break even at ____ units.

A) 1,167
B) 1,000
C) 1,750
D) 2,500
E) 700

Question 61

What a price means or what it communicates to customers is called

A) reference.
B) response.
C) interpretation.
D) internalization.
E) signaling.

Question 62

If a company provides price differentials that harm competition by giving one or more buyers a competitive advantage, it is committing

A) price discrimination.
B) price-consciousness.
C) functional discounting.
D) price competition.
E) price fixing.

Question 63

The degree to which the price of a product enhances a customer's satisfaction with the purchase experience and with the product after the purchase is part of their

A) response.
B) reference.
C) interpretation.
D) price satisfaction.
E) price-consciousness.

Question 64

Monopolies usually keep their prices at a level that generate a reasonable, but not excessive, return primarily because

A) they want to avoid new competitors entering their market.
B) they want to avoid government regulations on their pricing.
C) they try to satisfy the demands of value-conscious consumers.
D) firms can increase market share more rapidly this way.
E) customers will discontinue use of these products if prices rise.

Question 65

Which of the following acts does not directly affect pricing decisions?

A) Sherman Antitrust Act
B) Federal Trade Commission Act
C) Wheeler-Lea Act
D) Clayton Act
E) Simpson-Marshall Act

Question 66

The amount of profit a channel member expects depends on

A) the amount of discounts for large orders provided by the producers.
B) the number of channel support activities provided by the producers.
C) what the intermediary could earn if it were handling a competing product instead.
D) the type of distribution channels involved.
E) the amount of effort required to carry the product.

Question 67

A price developed in the consumer's mind through experience with the product is called a(n)

A) external reference price.
B) value-price guideline.
C) frame of reference.
D) internalized price.
E) internal reference price.

Question 68

Both the Federal Trade Commission Act and the Wheeler-Lea Act prohibit

A) freezing prices.
B) independent pricing policies.
C) deceptive pricing.
D) price fixing.
E) price differentials.

Question 69

To gain market share, when Hyundai first entered the U.S. car market it did so with a comparatively low pricing strategy. One of the negative side effects of making this pricing decision is

A) a negative impact on consumers' perceptions of quality.
B) difficulty raising the prices later.
C) a high return on investment level affecting tax balances owed.
D) poor survival chances.
E) higher developmental costs.

Question 70

Buyers who focus on purchasing products that signify prominence and status are

A) value-conscious consumers.
B) price-conscious consumers.
C) socially elite buyers.
D) prestige-sensitive buyers.
E) brand aware consumers.

Question 71

The ____ prohibits price fixing among firms in an industry.

A) Sherman Antitrust Act
B) Federal Trade Commission Act
C) Wheeler-Lea Act
D) Robinson-Patman Act
E) Clayton Act

Question 72

ACE Electronics introduces a new voice-activated personal computer that no longer requires a keyboard. ACE charges the high price of $11,000 per unit, thus generating large profits because it has a 20 percent market share. ACE's major problem in the future will most likely be

A) survival.
B) cash flow.
C) competition.
D) return on investment.
E) profit.

Question 73

Marketers have no flexibility in setting prices under conditions of

A) a monopoly.
B) an oligopoly.
C) perfect competition.
D) monopolistic competition.
E) no competition.

Question 74

Lucy buys a new dress at T.J. Maxx that has a price tag with "Compare at $150.00. Our Price $89.99." This is an example of the use of

A) internal referencing.
B) cumulative discounts.
C) seasonal discounts.
D) base-point pricing.
E) an external reference price.

Question 75

The types of prices that appear most often in ads are ___; while the types of prices that occur least often in ads are ____ prices.

A) reference; comparison
B) discount; cost-plus
C) bargain; premium
D) comparison; cost-plus
E) sale; reference

Question 76

When a customer is considering the purchase of a product in a less-familiar product category, that individual is likely to rely more heavily on

A) internal reference prices.
B) symbol prices.
C) high value products.
D) discounted reference prices.
E) external reference prices.

Question 77

Generally, customers are most likely to rely on the price-quality association when

A) they cannot judge the quality of the product for themselves.
B) the product is a well-known brand.
C) customers can judge the product's quality for themselves.
D) the product is purchased through the use of the Internet.
E) products are being purchased from well-established retailers that are familiar to customers.

Question 78

Which of the following products is most likely to involve personal selling?

A) Blenders at a department store
B) Riding lawn mowers
C) Kindle Fire
D) Picture frames at a hobby supply store
E) Footballs at a sporting goods store

Question 79

Nicole is out shopping with her friends for the day. While evaluating a decision to purchase a handbag, she says, "People notice when you buy the most expensive brand of a product." Nicole is most likely a _____ consumer.

A) price-conscious
B) quality-conscious
C) value-conscious
D) socially conscious
E) prestige-sensitive

Question 80

Vanessa is shopping for a new pair of athletic shoes. Since she is concerned about both the price and the quality aspects of a product, Vanessa is most likely a ___ consumer.

A) Price-conscious
B) Prestige-sensitive
C) Value-conscious
D) Price-conscious and prestige-sensitive
E) Quality-conscious