Question 1

The decline in the average cost of production with accumulated production experience is called the ________.

Accepted Answer

The decline in average cost of production with accumulated production experience is referred to as the learning curve. As production experience increases, workers become more skilled and efficient in performing tasks, leading to a reduction in the time and resources required to produce each unit, and ultimately resulting in a decrease in average production costs.

Question 2

Despite its weaknesses, markup pricing remains popular for which of the following reasons?

Accepted Answer

Many people perceive cost-plus pricing as a fairer method of pricing for both buyers and sellers. Despite its flaws, markup pricing remains popular because some individuals prefer a pricing approach that is perceived as decent for both parties. Cost-plus pricing often leads to higher consumer trust and loyalty because customers feel that they are being charged fairly, which leads to a better reputation for the seller.

Question 3

JJ pays overhead each month, including his company's bills for rent, heat, interest, and salaries, which are examples of ________ costs.

Accepted Answer

Rent, heat, interest, and salaries are examples of fixed costs, which are expenses that do not vary with the level of production or sales. Overhead costs are typically fixed costs as they are necessary expenses for running a business, regardless of the volume of goods or services produced.

Question 4

The key to perceived-value pricing is to ________.

Accepted Answer

Perceived-value pricing involves delivering more unique value than competitors, which justifies charging a higher price and allows customers to perceive the product or service as having a higher value. This does not necessarily require reengineering the company's operations, using subtle marketing tactics, delivering more value at a lower cost, or investing heavily in advertising.

Question 5

Deducting the desired profit margin from the price at which a product will sell, given its appeal and competitors' prices, is known as ________.

Accepted Answer

Deducting the desired profit margin from the price at which a product will sell is known as target costing.

Question 6

Everyday low pricing is most suitable if ________.

Accepted Answer

Everyday low pricing is most suitable when the cost of conducting frequent sales and promotions is high, as it allows a company to maintain a consistent pricing strategy without the need for constant discounts and promotions.

Question 7

A retailer who utilizes a(n) ________ policy charges a constant low price with little or no price promotions and special sales.

Accepted Answer

The definition given in the question perfectly matches the concept of everyday low pricing, where the retailer offers a constant low price without any price promotion or special sales.

Question 8

When ConAgra foods decided to cut $250 million in costs to return to a $1 price point (after sales dropped as a result of raising prices $0.25 to cover higher commodity costs), it was using ________.

Accepted Answer

ConAgra foods' decision to cut costs in order to return to a $1 price point is an example of target costing, which involves determining a target cost for a product or service and then working to achieve that cost through various cost-cutting measures. By using target costing, ConAgra foods was able to maintain a competitive price point while also addressing the issue of higher commodity costs.

Question 9

Costs that differ directly with the level of production are known as ________ costs.

Accepted Answer

Variable costs are costs that change in proportion to the level of production. As production increases, variable costs increase, and as production decreases, variable costs decrease. Examples of variable costs include direct labor, raw materials, and commissions.

Question 10

An umbrella manufacturing company's fixed costs are $275,000. The variable cost per unit is $5 and each umbrella is sold at $10. How many units should the firm sell in order to break even?

Accepted Answer

The answer of An umbrella manufacturing company's fixed costs are...

Question 11

Experience-curve pricing ________.

Accepted Answer

Experience-curve pricing assumes that competitors will not be able to match the cost reductions achieved through increased production experience, thus considering them as weak followers.

Question 12

Which of the following is the most elementary pricing method?

Accepted Answer

Markup pricing is the most elementary pricing method as it involves simply adding a markup percentage to the cost of the product or service to determine the selling price. This method does not take into account factors such as competition or customer perceived value.

Question 13

Matt's retail store offers all products at $2 less than its competitors. The store never runs promotional campaigns or offers special discounts. Matt's retail store is following a(n) ________ pricing policy.

Accepted Answer

Matt's retail store is providing low prices consistently, without any promotions or discounts. This matches the definition of an "everyday low" pricing strategy.

Question 14

________ cost is the cost per unit at that level of production; it equals total costs divided by production.

Accepted Answer

Average cost is the cost per unit at a particular level of production. It is calculated by dividing total costs by the level of production. This provides an idea about the cost incurred at different levels of production and helps in decision-making related to pricing, production, and profitability. Therefore, the correct choice is average cost (B).

Question 15

Which of the following is true regarding price elasticity?

Accepted Answer

Within the price indifference band, price changes have little or no effect on demand. This is because consumers are indifferent to small changes in price within a certain range, and their buying behavior remains relatively constant. The other options are incorrect: A is opposite to the correct statement, C is incorrect because if demand is elastic, then increasing the price would actually decrease total revenue. D is incorrect because price elasticity does depend on the magnitude and direction of the price change. E is incorrect because when demand is inelastic, sellers can increase total revenue by raising prices rather than lowering them.

Question 16

Competitors are most likely to react to a price change when ________.

Accepted Answer

Competitors are more likely to react to a price change when there are few competing firms because in a highly competitive environment, price changes are expected and may not necessarily trigger a competitive response. However, in a market with few competitors, price changes can have a significant impact on market share and profitability, leading to a more immediate and aggressive reaction from competitors.

Question 17

Costs that do not vary with production levels or sales revenue are known as ________ costs.

Accepted Answer

Overhead costs, also known as fixed costs, remain the same regardless of the level of production or sales revenue. Examples of overhead costs include rent, salaries of permanent employees, and utility bills. Option B, variable costs, vary with production levels, while option C, average costs, is a statistical concept that calculates the cost per unit. Option D, opportunity costs, refers to the value of the next best alternative foregone. Option E, total costs, is the sum of variable and fixed costs.

Question 18

________ pricing takes into account a host of inputs, such as the buyer's image of the product performance, the channel deliverables, the warranty quality, customer support, and attributes such as the supplier's reputation, trustworthiness, and esteem.

Accepted Answer

Perceived-value pricing takes into account the buyer's image of the product performance, the channel deliverables, the warranty quality, customer support, and attributes such as the supplier's reputation, trustworthiness, and esteem. It is based on the idea that customers will pay a higher price for a product that they perceive as having a higher value.

Question 19

________ pricing is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality.

Accepted Answer

The description provided matches with value pricing. The company focuses on reengineering their operations to lower their costs while maintaining the same level of quality as before, ultimately providing better value to the customers.

Question 20

A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first year. Calculate the company's target-return price for this product.

Accepted Answer

First, we need to calculate how much profit the manufacturer wants to earn in the first year:

ROI = (Profit / Investment) x 100
0.15 = (Profit / $750,000) x 100
Profit = 0.15 x $750,000
Profit = $112,500

Next, we need to calculate the total cost of producing 50,000 units:

Total Cost = Cost per Unit x Number of Units
Total Cost = $18 x 50,000
Total Cost = $900,000

Now, we can calculate the target price per unit:

Target Price = (Total Cost + Desired Profit) / Number of Units
Target Price = ($900,000 + $112,500) / 50,000
Target Price = $20.25

Therefore, the company's target-return price for this product is $20.25, which is option C.

Quiz 16: Developing Pricing Strategies and Programs