Question 1

Price discrimination can sometimes be justified.

Accepted Answer

Price discrimination can be justified when it allows companies to provide different prices for different groups of consumers based on factors such as income or willingness to pay, without leading to unfair competition or discrimination. For example, student discounts or senior citizen discounts are a form of price discrimination that can be helpful in making products affordable for these groups.

Question 2

Functional discounts are typically calculated as the wholesale price times the accumulated margin percentages.

Accepted Answer

Functional discounts are typically a percentage discount from the base price.

Question 3

Penetration pricing is sometimes referred to as a "market-plus" approach to pricing.

Accepted Answer

Price skimming is sometimes referred to as a "market-plus" approach to pricing.

Question 4

It makes the most sense to use price skimming as a pricing policy when supply is greater than demand.

Accepted Answer

It makes the most sense to use price skimming as a pricing policy when demand is greater than supply.

Question 5

All pricing objectives have trade-offs that managers must weigh.

Accepted Answer

All pricing objectives come with their own set of benefits and drawbacks, so managers must consider these trade-offs when selecting a pricing strategy.

Question 6

A retailer of furniture for babies that is allowed to deduct 3 percent from its total bill if it pays by a specific date is receiving a cash discount.

Accepted Answer

The retailer is offering a cash discount of 3 percent for paying by a specific date.

Question 7

One disadvantage of using a penetration pricing policy is that the high unit profit margins will attract potential competitors into production of similar products.

Accepted Answer

Penetration pricing has low profit margins on each unit sold.This is seen as an advantage because it discourages potential customers from entering the market.

Question 8

The American Girl catalogue began as a concept to introduce girls who lived in the past to today's girls.Each historically accurate doll is carefully crafted and dressed and has books to describe her life.For example,Kristen is an 1854 pioneer girl who is growing up in Minnesota.Her story begins with her long sea voyage from Sweden.The basic doll dressed in a calico dress and striped apron and the hardcover story of how she got to Minnesota cost $90.Six more hardback books of Kristen's life are available for $80.Kristen's nightgown costs $20,and a matching one for the doll owner is an additional $40.Buy both together and the price is only $50.A hand-painted wooden bed and trunk for Kristen are available for $220.Shipping costs vary with the price of the merchandise ordered and are not connected to weight or distance.
-Refer to American Girl Catalogue.When a customer buys the matching nightgown set for the doll and her owner,what did American Girl use to price the items?
A)price bundling
B)markdown pricing
C)penetration pricing
D)status quo pricing

Accepted Answer

The two items sold together are priced less expensively than if purchased separately.

Question 9

Hudson Melendez owns a company that installs in-ground swimming pools.He gives large discounts to homeowners who have pools built in October or November.This is an example of a seasonal discount.

Accepted Answer

The statement describes a discount that is specifically offered during the months of October and November, which indicates a seasonal discount.

Question 10

Leading Brands,Inc. ,manufactures Trek Natural sports drink.The company would like to introduce a Trek Natural brand energy drink.Leading Brands would have a great amount of freedom in choosing a price for its new energy drink.

Accepted Answer

If a firm brings out a new item similar to a number of others already on the market,its pricing freedom will be restricted.

Question 11

Once he compiles information on pricing objectives,market demand,quantity supplied,and the price elasticity of demand,the owner/operator of a home cleaning service will be ready to determine the optimal price for a new service offering.

Accepted Answer

He must also collect information or estimates about costs and total revenue at a variety of prices.Only then can he make reasonable estimates about profits and market share.

Question 12

Manufacturers know the approximate price level they can expect when establishing a product price.This approximate price is called the base price.

Accepted Answer

Manufacturers use market research and analysis to determine the approximate price level for their products, which is referred to as the base price.

Question 13

A winery that makes a huge profit on merlot wines may lower its price on pinot noir wines to cause damage to wineries that produce only pinot noir.This is an example of predatory pricing.

Accepted Answer

Predatory pricing is the practice of lowering prices to a level that makes it difficult for competitors to compete, with the intention of driving them out of the market. In this case, the winery is lowering the price on pinot noir wines to damage wineries that produce only pinot noir, which is an example of predatory pricing.

Question 14

The American Girl catalogue began as a concept to introduce girls who lived in the past to today's girls.Each historically accurate doll is carefully crafted and dressed and has books to describe her life.For example,Kristen is an 1854 pioneer girl who is growing up in Minnesota.Her story begins with her long sea voyage from Sweden.The basic doll dressed in a calico dress and striped apron and the hardcover story of how she got to Minnesota cost $90.Six more hardback books of Kristen's life are available for $80.Kristen's nightgown costs $20,and a matching one for the doll owner is an additional $40.Buy both together and the price is only $50.A hand-painted wooden bed and trunk for Kristen are available for $220.Shipping costs vary with the price of the merchandise ordered and are not connected to weight or distance.
-Refer to American Girl Catalogue.Why does American Girl use even-numbered pricing?
A)It is the norm in the retail catalogue industry.
B)Even-numbered pricing is used to denote quality.
C)Even-numbered pricing makes consumers feel they are paying a lower amount.
D)It is the norm in the toy industry.

Accepted Answer

Even-numbered pricing is often used to denote quality and prestige, suggesting that the products are of higher value.

Question 15

The Raver-Smythe Corporation (RSC)has introduced mylar-based artificial fingernails.It earns a low profit margin on the sale of each box of its new fingernails and is still able to meet its revenue objectives due to economies of scale.RSC is using a penetration pricing policy.

Accepted Answer

RSC is using a penetration pricing policy by selling its mylar-based artificial fingernails at a low price to gain market share and achieve economies of scale. This allows them to meet their revenue objectives even with a low profit margin per box.

Question 16

There are two limousine services that drive customers from communities in Winnipeg to the airport.Whenever one reduces its fare,its competitor reduces its fares by the same amount.This is an example of status quo pricing.

Accepted Answer

The fact that both services reduce their fares by the same amount whenever one reduces its fare indicates that they are maintaining the status quo pricing strategy, where competitors match each other's prices to avoid losing customers.

Question 17

The first step in setting the right price for a new product is to estimate demand,costs,and profits.

Accepted Answer

The first step in setting the right price for a new product is to derive pricing goals from the firm's overall objectives.

Question 18

Functional discounts,noncumulative quantity discounts,and promotional allowances are examples of rebates given to the trade customer.

Accepted Answer

Rebates involve a cash refund for the purchase of a product during a specific period.

Question 19

Price fixing is clearly illegal in all instances.

Accepted Answer

Price fixing involves colluding with competitors to set prices at an agreed upon level, which is a violation of antitrust laws. It can result in higher prices for consumers and less competition in the market.

Question 20

The basic assumption with price skimming is that the firm is customer driven,and seeks to understand the attributes customers want in goods and services they buy and the value of that bundle of attributes to customers.

Accepted Answer

This is the basic assumption for value pricing.

Quiz 19: Setting the Right Price