Question 1

Because small businesses are small by definition, pricing and credit considerations are relatively unimportant to their overall performance.

Accepted Answer

Pricing and credit considerations can have a significant impact on the overall performance of small businesses, as they may have limited resources to absorb losses from undervalued pricing or unpaid debts. Therefore, small businesses need to carefully consider their pricing strategies and credit policies to ensure their financial stability and growth.

Question 2

Setting a price for a product or service is as much art as science.

Accepted Answer

Setting a price involves a combination of market research, understanding the target audience, analyzing competitors, and positioning the product or service in the market. However, there is also a subjective element, as pricing can impact consumer perception and buying behavior. Therefore, it is considered an art as much as a science.

Question 3

Break-even analysis begins by determining what sales level is needed to generate a profit.

Accepted Answer

True

Question 4

With a skimming price strategy, prices are set lower than what will be the normal, long-range price to gain more market share.

Accepted Answer

The answer of With a skimming price strategy, prices are...

Question 5

Prestige pricing (setting a high price to convey an image of high quality or uniqueness) is a pricing tactic that reflects competitive advantage.

Accepted Answer

Prestige pricing positions the product or service as exclusive and high quality, which can create a competitive advantage in the market. Therefore, this statement is true.

Question 6

A small business in competition with larger firms is seldom in a position to function as a price leader.

Accepted Answer

Larger firms usually have the advantage of economies of scale, making it easier for them to offer lower prices. Small businesses are often unable to match these prices and therefore cannot function as price leaders.

Question 7

If demand for a product is elastic, a change in price will have little effect on total revenues.

Accepted Answer

If demand for a product is elastic, a change in price will have a significant effect on total revenues. A decrease in price will lead to increased demand and higher total revenues, while an increase in price will lead to decreased demand and lower total revenues. Conversely, if demand for a product is inelastic, a change in price will have little effect on total revenues.

Question 8

Price lining refers to the systematic determination of the right price for a product or service.

Accepted Answer

Price lining actually refers to the practice of offering a product line at several different price points, not to the determination of the right price for a single product or service.

Question 9

In conducting a comprehensive break-even analysis, a firm must examine both its revenue-cost relationships and sales forecasts.

Accepted Answer

In a comprehensive break-even analysis, a firm must analyze its revenue and cost relationships to determine at what point its revenue will equal its total costs. In addition, the firm must also consider its sales forecasts to determine the level of sales necessary to achieve a break-even point.

Question 10

Break-even analysis is an accurate tool for pricing because it points directly to the correct price for a given product.

Accepted Answer

While break-even analysis can provide useful information for pricing decisions, it does not necessarily provide the "correct" price for a product. Other factors such as competition, customer demand, and perceived value also play a role in determining pricing strategies.

Question 11

Markup rates should be high enough to cover a product's cost, other expenses, any price reductions, and profit.

Accepted Answer

The answer of Markup rates should be high enough to...

Question 12

Under certain conditions, pricing at less than total costs makes sense as a long-term strategy.

Accepted Answer

Pricing below total costs is typically unsustainable long-term as it can lead to financial losses, unless it's part of a strategic plan like gaining market share or eliminating competition, which are usually short-term tactics.

Question 13

Markups may be expressed as a percentage of either the firm's cost or the industry-standard cost.

Accepted Answer

The answer of Markups may be expressed as a percentage...

Question 14

Cost analysis can identify a level below which a price should not be set under normal circumstances.

Accepted Answer

Cost analysis helps determine the minimum price that should be set to cover production costs and generate a reasonable profit margin. This minimum price acts as a threshold below which the price should not be set under normal circumstances.

Question 15

Marketing expenses, factory equipment costs, and salaries of office personnel are considered variable costs.

Accepted Answer

Marketing expenses, factory equipment costs, and salaries of office personnel are typically considered fixed costs, meaning they do not vary with changes in production or sales levels. Variable costs are expenses that change in proportion to production or sales, such as direct labor and raw materials.

Question 16

The best pricing practice is to undercut competitors' prices.

Accepted Answer

Undercutting competitors' prices may attract customers in the short-term, but it is not a sustainable pricing strategy in the long-term. It can lead to a price war, erode profit margins, and damage brand reputation. It's important to consider factors such as cost, value, and customer perception when setting prices.

Question 17

Variable pricing strategy occurs where a business sets and advertises a fixed price but gives a discount for reasons such as the customer's amount purchased.

Accepted Answer

This is the definition of a variable pricing strategy.

Question 18

Average pricing is an appropriate pricing approach for small businesses because the method takes into consideration both fixed and variable costs.

Accepted Answer

The answer of Average pricing is an appropriate pricing approach...

Question 19

A penetration price strategy is most practical when there is a low threat of short-term competition in the market or when startup costs must be recovered rapidly.

Accepted Answer

A penetration pricing strategy is most practical when there is a high threat of short-term competition in the market, as it aims to quickly attract customers by offering lower prices than competitors.

Question 20

Services are generally easier to price than products.

Accepted Answer

The answer of Services are generally easier to price than...

Quiz 16: Pricing and Credit Decisions