Question 1

Environmental elements are categorized as external factors that affect pricing decisions.

Accepted Answer

Environmental elements such as competition, economic conditions, and government regulations are external factors that can impact a company's pricing decisions.

Question 2

An upward-sloping experience curve is beneficial for a company.

Accepted Answer

The answer of An upward-sloping experience curve is beneficial for...

Question 3

The more elastic the demand,the more it pays for the seller to raise the price.

Accepted Answer

The statement is the opposite of the economic law of demand, which states that as price increases, demand decreases. In other words, if the demand is elastic (responsive to price changes), raising the price will result in a significant decrease in the quantity demanded, which could hurt the seller's revenue. It is more profitable for the seller to increase the price when demand is inelastic (less responsive to price changes).

Question 4

Value-based pricing is being used when costs vary directly with the level of product.

Accepted Answer

Value-based pricing is based on the perceived value of the product to the customer, and not directly tied to the costs of producing the product.

Question 5

Target profit pricing is used when a firm tries to determine the price at which it will break even or make the profit it is seeking.

Accepted Answer

Target profit pricing involves setting a price that will allow a company to cover its costs and achieve a desired profit level. This means that the company is aiming to break even or make a specific profit, rather than simply trying to maximize revenue or market share.

Question 6

Markup pricing is popular because prices tend to be similar and price competition is thus minimized.

Accepted Answer

The answer of Markup pricing is popular because prices tend...

Question 7

Prices have a direct impact on a company's bottom line.

Accepted Answer

Prices directly affect the revenue a company generates, which in turn impacts its profitability and bottom line. If prices are too low, the company may not make enough revenue, while if prices are too high, customers may not purchase products or services, leading to lower revenue and a reduced bottom line.

Question 8

Average cost increases with accumulated production experience.

Accepted Answer

This statement is actually a common misconception known as the "learning curve fallacy". In reality, the relationship between experience and cost is more complex and often depends on the specific situation. In some cases, costs may decrease with experience due to efficiencies gained, while in other cases costs may increase due to factors such as increased labor wages or materials costs. Therefore, the answer is B.

Question 9

Product costs set a floor to the price; consumer perceptions of the product's value set the ceiling.

Accepted Answer

Product costs, including production, materials, and distribution, determine the minimum price that a company can sell a product for without losing money. However, the maximum price a company can charge is set by consumer perceptions of the product's value, which can be influenced by factors such as branding, marketing, and competition. Therefore, product costs set the floor of the price, while consumer perceptions set the ceiling.

Question 10

Value-based pricing is the reverse of cost-based pricing.

Accepted Answer

Value-based pricing is based on the perceived value of a product or service to the customer, rather than the cost of producing it. This means that the price is set based on what the customer is willing to pay, rather than the cost of production. Cost-based pricing, on the other hand, is based on the cost of producing a product or providing a service, with a markup added for profit.

Question 11

A break-even chart shows the total cost and total revenue expected at various sales volume levels.

Accepted Answer

This is the correct definition of a break-even chart.

Question 12

The demand curve shows the number of units the market will buy in a given time period at different prices that might be charged.In normal cases,the higher the price,the lower the demand.

Accepted Answer

The law of demand states that as the price of a good increases, the quantity demanded decreases, resulting in a downward-sloping demand curve. Therefore, in normal cases, the higher the price, the lower the demand.

Question 13

Demand and consumer value perceptions set the floor for prices.

Accepted Answer

The answer of Demand and consumer value perceptions set the...

Question 14

In a pure monopoly,the market consists of one seller.

Accepted Answer

In a pure monopoly, there is only one seller who controls the entire market and there are no close substitutes for the product or service being sold.

Question 15

The simplest pricing method is cost-plus pricing,which involves adding a standard markup to the cost of the product.

Accepted Answer

Cost-plus pricing involves calculating the total cost of producing a product and adding a standard markup, usually expressed as a percentage of the cost, to determine the selling price. This is a simple method of pricing and is commonly used in businesses of all sizes.

Question 16

Cost-based pricing relies on consumer perception of value to drive pricing.

Accepted Answer

Cost-based pricing is based on the calculation of the total cost of production and adding a markup to determine the selling price. It does not rely on consumer perception of value. The alternative to cost-based pricing is value-based pricing, which does take into account consumer perception of value when setting prices.

Question 17

If demand changes greatly with price,we say the demand is inelastic.

Accepted Answer

If demand changes greatly with price, we say the demand is elastic. Conversely, if demand is relatively stable regardless of price changes, we say the demand is inelastic.

Question 18

Overhead cost is another term for fixed cost.

Accepted Answer

Overhead cost refers to fixed costs such as rent, utilities, salaries, etc. that do not vary with the level of production or sales.

Question 19

Value-based pricing uses the company's perception of value.

Accepted Answer

The answer of Value-based pricing uses the company's perception of...

Question 20

EDLP is very similar to high-low pricing.

Accepted Answer

EDLP (Everyday Low Pricing) and high-low pricing are two different pricing strategies. EDLP focuses on offering consistently low prices without frequent discounts or promotions, whereas high-low pricing involves regularly offering price discounts and promotions on select items in order to drive sales.

Quiz 10: Pricing Products: Understanding and Capturing Customer Value