Deck 19: Pricing Concepts

Question 1

Profit maximization is the price at which supply and demand are equal,and there is no inclination for prices to rise or fall.

Answer 1

False
Price equilibrium is the price at which supply and demand are equal,and there is no inclination for prices to rise or fall.

Question 2

The only way to maximize profits is to reduce costs by operating more efficiently.

Answer 2

False
Profit maximization can also be achieved by expanding revenue by increasing customer satisfaction.Companies can also attempt to reduce costs and expand revenue at the same time.

Question 3

Market share is a company's product sales as a percentage of its total sales for that industry.

Answer 3

True

Question 4

Yield management systems can only be used by service industries.

Question 5

Today's firms must develop specific,measurable,and attainable pricing objectives if they hope to survive in highly competitive markets.

Question 6

If the formula for elasticity results in a measure of elasticity (E)equal to 1,the increase in sales exactly offsets the decrease in price,so total revenue remains the same.

Question 7

When many substitute products are available,demand is inelastic.

Question 8

If demand for milk is inelastic,consumers will not change their purchasing habits greatly when the price of milk changes.

Question 9

In most communities,the price of gas is more or less the same at all area service stations.This is an example of sales-oriented pricing.

Question 10

Target return on investment is the most common profit objective used by firms.

Question 11

Firms that price their products solely on the basis of costs are adhering to the marketing concept.

Question 12

Markup pricing,adding an amount to cost to cover expenses and profit,is one of the most common pricing methods used by intermediaries to establish a selling price.

Question 13

The owner of Buffalo Mountain Coffee Shop pays the same amount in rent each month no matter how many customers she serves.The shop owner's rent is an example of a marginal cost.

Question 14

Profit is the price charged to customers multiplied by the number of units sold.

Question 15

A lack of pricing power means that when a company tries to raise its prices,it loses sales volume as customers shift to low cost competitors or find a substitute product.

Question 16

Variable costs vary with changes in the level of output,whereas marginal costs do not vary as output changes.

Question 17

When pricing goals are mainly sales oriented,cost considerations usually dominate.

Question 18

Research indicates that when a country's inflation rate is high,demand becomes more elastic.

Question 19

Price is defined as the perceived value of a good or service that is exchanged for a certain dollar amount.

Question 20

Maximization of cash should be a long-term objective.

Question 21

The manufacturers that remain in the market toward the end of the maturity stage typically offer similar prices.

Question 22

Research has shown that products perceived to be of high quality tend to benefit less from price promotions than products perceived to be of lower quality.

Question 23

Revenue:

A)equals quantity sold times profit margin
B)equals price minus costs
C)equals return on investment
D)is synonymous with profit
E)equals price of goods times quantity sold

Question 24

A firm has maximized its profits when its marginal revenue exceeds its marginal cost.

Question 25

As products enter the growth stage of the product life cycle,prices generally begin to stabilize.

Question 26

At Walmart,Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer.The items,which were sold together,retailed at $28.50 but were marked down to $19.99.The $19.99 is the:

A)revenue.
B)price.
C)profit.
D)liquidity value.
E)amortized value.

Question 27

Which of the following statements is NOT true about price?

A)Price can relate to anything with perceived value,not just money.
B)Price is that which is given up in an exchange to acquire a product.
C)Price means the same thing to the consumer and the seller.
D)The price paid is based on the satisfaction consumers expect to receive from a product.
E)Customers are interested in obtaining a perceived reasonable price.

Question 28

Break-even analysis determines what sales volume must be reached before total revenue equals total costs.

Question 29

At Walmart,Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer.The items,which were sold together,retailed at $28.50 but were marked down to $19.99.The retailer sold one at the $28.50 price and five at the $19.99 price.The retailer's revenue is:

A)$8.51
B)$19.99
C)$28.50
D)$128.45
E)$171.00

Question 30

If a shopping bot steers you to an exceptionally low price,you should suspect Internet fraud.

Question 31

High purchase prices may create feelings of pleasure and excitement in consumers.

Question 32

Money that is left over after paying for company activities is called:

A)return on investment.
B)a contribution margin.
C)profit.
D)net worth.
E)a current asset.

Question 33

Price should not be used as a promotional tool.

Question 34

When goods and services are exchanged,the trade is called:

A)exchange.
B)substitution.
C)barter.
D)swap.
E)bargaining.

Question 35

_____ pay for every activity of the company.

A)Revenues
B)Investments
C)Retained earnings
D)Profits
E)Prices

Question 36

Adequate distribution for a new product is often obtained by reducing the size of the profit margin for its resellers.

Question 37

The B2B Internet auction world is shifting from using warranties,delivery dates,and financing options as bargaining chips to haggling over prices.

Question 38

Prices always steadily decline for a product in the decline stage of the product life cycle.

Question 39

One strategy to get adequate distribution for a new product is to offer dealers a large trade allowance to help offset the costs of promotion.

Question 40

Price is best described as:

A)that which is given up in exchange to acquire a good or service
B)money exchanged for a good or service
C)the psychological results of purchasing
D)the cost in dollars for a good or service as set by the producer
E)the value of a barter good in an exchange

Question 41

When the local Shell station raises or lowers its prices on its gasoline,the Marathon station across the street makes the same changes in its pricing.This is an example of _____ pricing.

A)status quo
B)target return
C)market share
D)predatory
E)cost-plus

Question 42

Pierre's Ice Cream Company produces ultra-rich ice cream,which it sells in the Cleveland,Ohio,area.Last year,it managed to exceed its target return on investment (ROI)for the current fiscal year.The following results were found on its financial statements:

What was the actual ROI for Peirre's Ice Cream Company?

A)6.67 percent
B)10 percent
C)22 percent
D)28 percent
E)100 percent

Question 43

At the end of the summer,the Bloomin' Garden Center reduced the price on all of its plants,fertilizer,and potting soil by 50 percent in order to liquidate this inventory.What type of pricing strategy is being used in this example?

A)Supply oriented
B)Sales maximization
C)Target return on investment
D)Satisfactory profit
E)Profit maximization

Question 44

Britney is fifteen years old and wants to open her own business selling cupcakes to local coffee shops and restaurants.She is having a tough time deciding whether to base her pricing objectives on market share,dollar sales,or unit sales.Regardless of which she chooses,her pricing objective can be categorized as:

A)status quo.
B)profit oriented.
C)need oriented.
D)cost oriented.
E)sales oriented.

Question 45

Which of the following statements describes an advantage of status quo pricing?

A)Status quo pricing is derived from actual costs of manufacturing.
B)Status quo pricing maintains the organization's differential advantage.
C)Status quo pricing is active,not reactive.
D)Status quo pricing causes price wars.
E)Status quo pricing requires little planning.

Question 46

Although many factors can influence price,the primary determinants are:

A)costs of manufacturing and distribution
B)the demand for the good and the cost to the seller
C)demand by the consumer and perceived quality
D)distribution and promotion strategies
E)stage of the product life cycle and costs to the consumer

Question 47

As a short-term pricing objective,_____ can be effectively used on a temporary basis to sell off excessive inventory.

A)profit maximization
B)profit-oriented pricing
C)status quo pricing
D)sales maximization
E)market share pricing

Question 48

Thompson Pool and Patio is known for quality pool installations,excellent customer service,and reasonable prices.If you want to have a Thompson pool,you will have to wait about six months due to demand for their product.While Thompson could probably price its product higher,given the demand,they don't.Instead,the company sets its price so that it will earn a reasonable level of profits.Thompson seems to base its pricing policy on:

A)profit maximization.
B)earning satisfactory profits.
C)creating retained earnings.
D)making the most money as possible.
E)decreasing consumer demand.

Question 49

_____ is a company's product sales as a percentage of total sales for that industry.

A)Return on investment
B)Profit share
C)Revenue share
D)Market share
E)Contribution

Question 50

Dixie Furniture Company has recently moved to a new,larger location.At this new location,it has been unable to attract sufficient customers.Its owner did not have the cash to pay the current loan installment due on the building and inventory,so he decided to reduce all merchandise prices by at least 50 percent for a weekend sale to earn enough to make his loan payment.His pricing objective can be classified as:

A)market share maximization.
B)satisfactory profits.
C)asset maximization.
D)sales maximization.
E)target ROI.

Question 51

When Insight Research Associates quotes a marketing research project,management will first estimate the cost to conduct the research and produce and deliver the final client report.The next step in determining the price is to add 30 percent to that cost estimate.This becomes the price estimate given to the potential research client.This suggests that Insight Research Associates uses a(n)_____ pricing objective.

A)profit-oriented
B)market share maximization
C)status quo
D)sales maximization
E)supply-demand equalization

Question 52

An organization is using _____ when it sets its prices so that total revenue is as large as possible relative to total costs.

A)profit maximization
B)market share pricing
C)demand-oriented pricing
D)sales maximization
E)status quo pricing

Question 53

The quantity of a product that will be sold in the market at various prices for a specified period is called:

A)market share.
B)demand.
C)supply.
D)value.
E)revenue.

Question 54

_____ is equal to net profit after taxes divided by total assets.

A)Return on investment
B)Economic order quantity
C)Target-on-sales
D)Retained earnings
E)Efficiency maximization

Question 55

When Apple,Inc.originally introduced its iPhone,it was priced at what many believed to be about as high as the market would allow.Within weeks,Apple lowered the price of the iPhone.It appears that Apple entered the market with a _____ approach to pricing the iPhone.

A)market share pricing
B)profit maximization
C)demand-oriented
D)sales maximization
E)status quo pricing

Question 56

If a company's pricing objective is to meet the competition or to maintain existing prices,it is using _____ pricing.

A)head-on
B)target return on investment
C)status quo
D)market share
E)demand-oriented

Question 57

At a price of $1,192,057,the Bugatti Veyron may be the most expensive street-legal car on the market today.Obviously,Bugatti is NOT using a(n)_____ pricing objective in setting the price for this car.

A)inelastic or supply-oriented
B)market share or sales maximization
C)profit maximization or target return on investment
D)status quo or satisfactory profits
E)demand-oriented or supply-oriented

Question 58

For convenience,pricing objectives can be divided into three categories.They are:

A)refundable,competitive,and attainable
B)perceived,actual,and unique-situational
C)differentiated,niche,and undifferentiated
D)profit oriented,sales oriented,and status quo
E)monopolistic,fixed,and variable

Question 59

A company using market share pricing has a _____ pricing objective.

A)profit-oriented
B)sales-oriented
C)demand-oriented
D)supply-oriented
E)status quo

Question 60

Why are marketing managers finding it more difficult to set prices in today's environment?

A)Inflationary and recessionary periods have made customers less price sensitive.
B)Fewer dealer and generic brands are available because the competition has been eliminated.
C)The high rate of new-product introductions has led to careful re-evaluation by consumers.
D)Marketing managers are finding it difficult to compare prices between suppliers.
E)Buyers are less informed and are less price-sensitive.

Question 61

Peggy's Twist Shack sells soft-serve ice cream.Peggy graphed the demand per week for vanilla ice cream cones.The graph indicates a demand schedule that slopes downward and to the right.This graph indicates that the quantity of vanilla ice cream cones demanded increases as:

A)cost increases.
B)supply decreases.
C)price increases.
D)price decreases.
E)supply increases.

Question 62

When Nesco brand food hydrators sold for $59.99,Nesco sold 90 dehydrators.When the company dropped the price of its dehydrators to $44.95,it sold 145 dehydrators.Demand for the food dehydrators appears to be:

A)elastic.
B)inelastic.
C)unitary.
D)symmetrical.
E)asymmetrical.

Question 63

One way a firm can gain pricing power is to:

A)produce something radically new and better than the competition.
B)lower prices at least 5% below the nearest competitor.
C)eliminate all poor producing products from manufacture and heavily promote the products that are left.
D)join forces with a competitor to corner the market on a product.
E)All of these strategies will help a firm gain pricing power.

Question 64

What happens when demand is elastic?

A)As price goes up,revenue goes down.
B)As price goes down,revenue goes down.
C)As price goes up,revenue goes up.
D)As price goes up,revenue does not change.
E)As price goes down,revenue does not change.

Question 65

_____ is the quantity of a product that will be offered to the market at various prices for a specified period.

A)Distribution
B)Supply
C)Price
D)Equilibrium
E)Elasticity

Question 66

All of the following factors directly affect the elasticity of demand EXCEPT:

A)other uses of a product.
B)inputs needed to manufacture the product.
C)availability of substitute goods.
D)price relative to a consumer's purchasing power.
E)product durability.

Question 67

When consumers are sensitive to price changes,_____ occurs.

A)inelastic demand
B)elastic supply
C)elastic demand
D)inelastic supply
E)unitary elasticity

Question 68

While the sales of the Apple iPhone have been great from the beginning,when Apple released its iPhone 3G and cut the price of the iPhone from $399 to $199,sales exploded with one million iPhones sold the first weekend.Demand for the iPhone appears to be:

A)unitary.
B)predictable.
C)synergistic.
D)inelastic.
E)elastic.

Question 69

Most demand curves slope:

A)horizontally
B)upward and to the right
C)downward and to the left
D)vertically
E)downward and to the right

Question 70

Consumers' responsiveness or sensitivity to changes in price is known as:

A)break-even.
B)Equilibrium.
C)unitary revenue.
D)asymmetrical demand.
E)elasticity of demand.

Question 71

Demand for which of the following products or services is most likely inelastic?

A)Fishing boats
B)Milk
C)Pedicures
D)Filet mignon steaks
E)Digital cameras

Question 72

When the NES Group lowered the price of its professional-grade meat slicers from $2,300 to $1,600,demand doubled from four units sold per month to eight units per month.However,total revenue dropped.This is an example of:

A)substitute goods
B)unitary elasticity
C)elastic demand
D)consumer shortage
E)inelastic demand

Question 73

If price _____ and revenue _____,demand is elastic.

A)goes up;goes down
B)goes down;goes down
C)goes down;goes up
D)down;stays the same
E)goes up;stays the same

Question 74

Bottles of Pure Hawaiian Air contain air that smells like the floral bouquet that greets tourists as they get off the plane in Hawaii.When a tourist shop began selling Pure Hawaiian Air,it charged $5 per bottle and could not keep up with the demand.It has since raised the price to $7.Now the shop is still selling all the bottles of Pure Hawaiian Air it carries,but the owner is not forced to reorder on a daily basis.The $7 price is probably a(n):

A)supply schedule.
B)symmetrical price.
C)price equilibrium.
D)inventory equalizer.
E)inelastic price.

Question 75

The price of the good or service is a key decision for a marketer because it most significantly and directly affects the product's:

A)distribution.
B)costs.
C)demand.
D)promotion.
E)quality.

Question 76

When price decreases and total revenue falls,demand is:

A)elastic.
B)inelastic.
C)absolute.
D)unitary.
E)stable.

Question 77

The _____ is the quantity of a product that will be sold in the market at various prices for a specified period,and _____ is the quantity of a product that will be offered to the market by suppliers at various prices for a specified period.

A)demand;equity
B)demand;supply
C)supply;demand
D)inventory;demand
E)inventory;supply

Question 78

When the price of a product is set at a level where demand and supply are the same,_____ has been achieved.

A)equilibrium
B)stability
C)leverage
D)symmetry
E)status quo

Question 79

At a price of $6,000,only 191 of the Moulton 60 model bicycle are being made.If Moulton sells each one of the bicycles at that price then a state of _____has been achieved.

A)symmetry
B)marketing balance
C)unitary economics
D)commerce stability
E)price equilibrium

Question 80

_____ occurs when an increase in sales exactly offsets a decrease in price so that total revenue remains exactly the same.

A)Inelastic demand
B)Functional elasticity of demand
C)Unitary elasticity
D)Highly elastic demand
E)Fixed elasticity