Question 1

Variable costs are costs that change with the level of production.

Accepted Answer

Variable costs are directly related to the level of production, meaning they increase or decrease as production levels change. Examples of variable costs include raw materials, labor, and shipping expenses.

Question 2

Carlotta owns and manages the Carlite Car Wash. She charges $8 per car wash. Her fixed costs are $600 per month, while her variable costs per car wash amount to $2. Carlotta must wash 60 cars to break even.

Accepted Answer

The answer of Carlotta owns and manages the Carlite Car...

Question 3

A high-low pricing strategy may condition consumers to avoid paying the regular prices by waiting for sale prices.

Accepted Answer

A high-low pricing strategy involves offering regular prices that are higher than the sale or discounted prices. Consumers may become conditioned to only purchase items when they are on sale and avoid paying the regular price. This can lead to a decrease in perceived value for the regular price and may also result in consumers waiting for sales to make purchases.

Question 4

A penetration strategy calls for a firm to charge low prices with the intent of attracting a large number of customers and discouraging competition.

Accepted Answer

This is the correct definition of a penetration strategy, which is meant to quickly establish a foothold in the market by offering lower prices than competitors. The goal is to gain market share and create barriers to entry for new competitors.

Question 5

Small firms often rely on non-price competition when competing against larger firms.

Accepted Answer

Small firms often do not have the resources to compete with larger firms on price, so they focus on other competitive advantages such as better customer service, unique products or services, or a more personalized experience. This is known as non-price competition.

Question 6

The key to demand-oriented pricing is the recognition that not all producers face the same costs of production.

Accepted Answer

The answer of The key to demand-oriented pricing is the...

Question 7

Total fixed costs are those costs that change when the volume of production changes.

Accepted Answer

Total fixed costs are those costs that do not change when the volume of production changes. They remain constant regardless of the level of production.

Question 8

Firms utilizing an everyday low pricing (EDLP) strategy establish a policy of special sales on a regular basis.

Accepted Answer

Firms utilizing an everyday low pricing (EDLP) strategy do not offer special sales on a regular basis. Instead, they offer consistently low prices every day.

Question 9

A skimming price strategy involves a low pricing policy intended to attract price-sensitive customers from competitors.

Accepted Answer

The answer of A skimming price strategy involves a low...

Question 10

A pricing strategy that uses bundling groups two or more related products together.

Accepted Answer

Bundling is a pricing strategy that involves offering two or more related products for sale as a single combined package at a discounted price, which is often lower than the price of buying each item separately.

Question 11

Psychological pricing utilizes high prices to create the image of a high quality product.

Accepted Answer

The answer of Psychological pricing utilizes high prices to create...

Question 12

One way firms can gain a competitive advantage without relying on low prices is by developing close, friendly relationships with their customers.

Accepted Answer

Developing close, friendly relationships with customers can lead to increased loyalty and word of mouth recommendations, which in turn can give a firm a competitive advantage over its rivals. This is known as a relational competitive advantage.

Question 13

For most firms, price competition is the most important way to gain a competitive advantage over rivals.

Accepted Answer

While price competition may be a factor in gaining a competitive advantage, it is not necessarily the most important way. Other factors such as product differentiation, customer service, brand reputation, and innovation can also contribute to a firm's competitive advantage.

Question 14

Miranda is a marketing manager for a large manufacturer. Her boss has asked her to evaluate a new product idea. One of the things Miranda wants to determine is how much of this product her firm would have to sell in order to break even. In order to compute this break-even level of sales, she will need to know the price of the good, the total fixed costs, and variable cost of producing each unit.

Accepted Answer

To calculate the break-even level of sales, one needs to know the price of the good, the total fixed costs, and variable cost of producing each unit.

Question 15

Rather than having frequent special sales, Walt's Warehouse has a pricing strategy that maintains lower prices than competitors all the time. Walt's pricing strategy is known as everyday low prices (EDLP).

Accepted Answer

The statement correctly describes Walt's pricing strategy as everyday low prices (EDLP), which maintains lower prices consistently rather than offering frequent sales.

Question 16

Despite the fact that microeconomic theory places a great deal of emphasis on price, marketers often try to find ways to compete on product attributes other than price.

Accepted Answer

While price is certainly an important factor in microeconomic theory, marketers understand that consumers are also influenced by other factors such as quality, convenience, design, and brand reputation. By emphasizing these product attributes, marketers can differentiate themselves from competitors and compete on more than just price.

Question 17

Pattie Bunz operates the Zestee Burgers restaurant. The cost of pickles, onions, buns, catsup, and meat patties would all be considered variable costs for her type of business.

Accepted Answer

Variable costs are those that vary with the level of output or sales, such as the cost of ingredients needed for making burgers. Pickles, onions, buns, catsup, and meat patties are all ingredients needed for making burgers and thus can be considered as variable costs for Zestee Burgers restaurant.

Question 18

Ultimately, the price of a good is determined by the interaction of supply and demand in the marketplace.

Accepted Answer

The price of a good is indeed determined by the interaction of supply and demand in the marketplace. This is a basic principle of economics known as the law of supply and demand. When the demand for a good is high and the supply is low, the price will typically rise. Conversely, when the demand is low and the supply is high, the price will typically fall.

Question 19

Gill's Gadgets establishes the price it charges for its products by determining the cost of production and then adding on a desired profit margin. Gill's strategy is known as target costing.

Accepted Answer

The answer of Gill's Gadgets establishes the price it charges...

Question 20

As the Internet grows in popularity, it is likely that more firms will adopt a high-low pricing strategy.

Accepted Answer

The answer of As the Internet grows in popularity, it...

Quiz 14: Developing and Pricing Goods and Services