Question 1

Ignoring demand is the major weakness of average-cost pricing.

Accepted Answer

Ignoring demand is the major weakness of average-cost pricing.

Question 2

Changes in total cost depend on variations in total variable cost,since total fixed cost stays the same.

Accepted Answer

Changes in total cost depend on variations in total variable cost,since total fixed cost stays the same.

Question 3

At zero output,total variable cost is zero.

Accepted Answer

At zero output,total variable cost is zero.

Question 4

Average-cost pricing works well if the firm actually sells the quantity that was used in setting the price,but losses may result if actual sales are much higher than were expected,due to higher total variable costs.

Accepted Answer

Average-cost pricing works well if the firm actually sells the quantity it used to set the average-cost price.Losses may result,however,if actual sales are much lower than expected.

Question 5

If a manager sells more than was expected when average-cost pricing was used to set a price,the firm will lose money.

Accepted Answer

Average-cost pricing works well if the firm actually sells the quantity it used to set the average-cost price.If sales are much higher than expected,then profits may be very good.

Question 6

As output increases,a firm's average fixed cost will probably go down.

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 7

If a firm's average variable cost is constant per unit,then the firm's average cost decreases continually as output increases because average fixed cost decreases continually.

Accepted Answer

Although the average variable cost remains the same,average cost decreases continually.This is because average fixed cost is decreasing.

Question 8

If the price per unit is $1.00 and the average variable cost per unit is 60 cents,the fixed cost contribution per unit is $1.40.

Accepted Answer

The fixed cost (FC)contribution per unit is the assumed selling price per unit minus the variable cost per unit.

Question 9

Average fixed cost goes down as output decreases.

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 10

Cost-oriented selling price per unit is obtained by adding a firm's desired profit per unit to the average total cost.

Accepted Answer

Refer to Exhibit 18-7.Cost-oriented pricing requires an estimate of the total number of units to be sold.That estimate determines the average fixed cost per unit and thus the average total cost.The firm then adds the desired profit per unit to the average total cost to get the cost-oriented selling price.

Question 11

Average-cost pricing works best in situations where demand conditions do not change a lot.

Accepted Answer

When demand conditions are changing,average-cost pricing is even more risky.

Question 12

Average fixed costs are lower when a large quantity is produced.

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 13

When setting prices,the marketing manager should consider the firm's demand curve,or else the price may not even cover the firm's total cost.

Accepted Answer

Unless the firm's demand curve is considered,the marketing manager may set a price that doesn't even cover a firm's total cost.

Question 14

A firm's total cost increases only when its variable cost increases.

Accepted Answer

Changes in total cost depend on variations in total variable cost,since total fixed cost stays the same.

Question 15

The break-even point is the intersection of the total cost curve and the total profit curve.

Accepted Answer

The break-even point (BEP)is the quantity at which the firm's total cost will just equal its total revenue.

Question 16

A firm's average variable cost (per unit)is obtained by dividing the total fixed cost by the total variable cost.

Accepted Answer

Average variable cost (per unit)is obtained by dividing total variable cost by the related quantity.

Question 17

Break-even analysis evaluates whether the firm will be able to cover all its costs with a particular price.

Accepted Answer

Break-even analysis evaluates whether the firm will be able to break even-that is,cover all its costs with a particular price.

Question 18

A firm's average fixed cost increases as its output increases.

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 19

Even if a firm's average variable cost remains constant per unit,its average cost will increase as output increases.

Accepted Answer

Although the average variable cost remains the same,average cost decreases continually.

Question 20

An advantage of average-cost pricing is that it considers competitors' costs and prices.

Accepted Answer

A danger of average-cost pricing is that it ignores competitors' costs and prices.

Quiz 18: Price Setting in the Business World

Ignoring demand is the major weakness of average-cost pricing.

Changes in total cost depend on variations in total variable cost,since total fixed cost stays the same.

At zero output,total variable cost is zero.

Average-cost pricing works well if the firm actually sells the quantity that was used in setting the price,but losses may result if actual sales are much higher than were expected,due to higher total variable costs.

If a manager sells more than was expected when average-cost pricing was used to set a price,the firm will lose money.

As output increases,a firm's average fixed cost will probably go down.

If a firm's average variable cost is constant per unit,then the firm's average cost decreases continually as output increases because average fixed cost decreases continually.

If the price per unit is $1.00 and the average variable cost per unit is 60 cents,the fixed cost contribution per unit is $1.40.

Average fixed cost goes down as output decreases.

Cost-oriented selling price per unit is obtained by adding a firm's desired profit per unit to the average total cost.

Average-cost pricing works best in situations where demand conditions do not change a lot.

Average fixed costs are lower when a large quantity is produced.

When setting prices,the marketing manager should consider the firm's demand curve,or else the price may not even cover the firm's total cost.

A firm's total cost increases only when its variable cost increases.

The break-even point is the intersection of the total cost curve and the total profit curve.

A firm's average variable cost (per unit)is obtained by dividing the total fixed cost by the total variable cost.

Break-even analysis evaluates whether the firm will be able to cover all its costs with a particular price.

A firm's average fixed cost increases as its output increases.

Even if a firm's average variable cost remains constant per unit,its average cost will increase as output increases.

An advantage of average-cost pricing is that it considers competitors' costs and prices.