Question 1

David manages a Shoney's restaurant.He is considering staying open later in the evening.For David,the variable costs associated with staying open longer hours will include all of the following EXCEPT:
A) ingredients used in preparing food.
B) hours worked by cooks.
C) monthly rent on the restaurant building.
D) energy costs.
E) hours worked by the waiters and waitresses.

Accepted Answer

Monthly rent on the restaurant building is a fixed cost, not a variable cost. The other options listed are all variable costs that will increase if the restaurant stays open later.

Question 2

Variable costs change with:
A) changes in fixed costs.
B) changes in cross-price elasticity.
C) changes in target return pricing.
D) changes in the quantity being produced.
E) competitive parity.

Accepted Answer

Variable costs are the costs that vary with the level of production. Therefore, they change with changes in the quantity being produced.

Question 3

Brad always buys and uses Nike brand golf balls.If he finds a Titleist or Callaway ball in the rough,he gives it away.Brand loyal golfers like Brad allow Nike to charge a higher price and not lose many sales.By building a strong brand,Nike has effectively:
A) increased the income effect for its products.
B) increased the cross-price elasticity for its products.
C) reduced the competitive parity point for its products.
D) shifted the golf ball market from a monopoly to pure competition.
E) reduced the price elasticity of demand for its products.

Accepted Answer

By building a strong brand, Nike has reduced the price elasticity of demand for its products. Brand loyal customers like Brad are less price sensitive and are willing to pay a higher price for Nike golf balls, which allows Nike to maintain higher prices without losing many sales. Therefore, Nike's brand strength has reduced the price elasticity of demand for its products.

Question 4

The more substitutes that exist in a market:
A) the lower the price elasticity for each product.
B) the greater the income elasticity for each product.
C) the easier it will be to utilize a target profit pricing strategy.
D) the more sensitive consumers will be to changes in the price of a particular product.
E) the more likely the market will be characterized as an oligopoly.

Accepted Answer

When there are more substitutes in a market, consumers have more options to choose from and are therefore more sensitive to changes in the price of a particular product. This makes the price elasticity of demand higher.

Question 5

Managers of Wendy's fast food restaurants keep track of prices at competitors such as McDonald's,Burger King,and Arby's,knowing that a decrease in the prices at these other fast food restaurants will:
A) increase the income effect for their products.
B) increase demand for their products.
C) decrease the income effect for their products.
D) increase the complementary effect for their products.
E) decrease demand for their products.

Accepted Answer

The answer of Managers of Wendy's fast food restaurants keep...

Question 6

Frank's Heating and Air Conditioning Company specializes in electric heat pumps.Frank keeps track of the price of natural gas,knowing that:
A) natural gas creates more environmental greenhouse effects than coal.
B) an increase in the price of natural gas will increase demand for his electrical heating systems.
C) gas heating systems and electrical heating systems are complementary goods.
D) when the price of natural gas goes up,the quantity demanded also rises.
E) the demand for natural gas is price elastic.

Accepted Answer

An increase in the price of natural gas will increase demand for Frank's electrical heating systems as consumers will be seeking alternatives to using natural gas.

Question 7

Internet comparison shopping sites like Shopping.com and Pricegrabber.com allow consumers to compare prices of substitute products much more easily than is possible without the Internet.These sites have:
A) reduced the price elasticity demand for individual products.
B) increased the cross-price elasticity for substitute products.
C) increased the income effect on price elasticity of demand.
D) reduced the cross-price elasticity of demand for complementary goods.
E) decreased the price elasticity of demand for groups of similar products.

Accepted Answer

Internet comparison shopping sites like Shopping.com and Pricegrabber.com allow consumers to compare prices of substitute products much more easily than is possible without the internet, which ultimately increase the cross-price elasticity for substitute products.

Question 8

__________ are costs that remain constant as the volume of production increases or decreases.
A) Fixed costs
B) Variable costs
C) Beneficial costs
D) Contribution per unit costs
E) Break-even point costs

Accepted Answer

Fixed costs remain constant regardless of the volume of production. These costs include expenses such as rent, salaries, and insurance premiums. They do not change with changes in production levels. Variable costs, on the other hand, increase or decrease with the volume of production. Beneficial costs, contribution per unit costs, and break-even point costs are not commonly used terms in accounting or finance.

Question 9

If the price for a product increases,the demand for the complementary product will:
A) decrease.
B) increase.
C) stay the same.
D) become more elastic.
E) become more inelastic.

Accepted Answer

When the price of a product increases, the demand for the complementary product decreases as people are less likely to purchase both products. For example, if the price of peanut butter increases, the demand for jelly (a complementary product) will decrease as people are less likely to purchase both items at a higher price.

Question 10

Bill is a yacht broker in the southeastern United States.For years he has had difficulty selling large yachts locally because there were few places to dock these boats.Yachts and spaces to dock them are an example of:
A) substitute products.
B) purely competitive products.
C) status quo pricing products.
D) complementary products.
E) competitive parity products.

Accepted Answer

Yachts and spaces to dock them are complementary products, as one is essential for the use of the other. Without a place to dock the yacht, it is essentially useless, making the availability of docking space a significant factor in purchasing a yacht.

Question 11

In general,prices should not be based on costs because:
A) consumers are cost-conscious.
B) producers rarely know what their costs are.
C) consumers make their purchase decisions based on perceived value.
D) producers need to avoid creating a cost competitive parity debate.
E) customers are always right.

Accepted Answer

Prices should be based on perceived value because consumers make their purchase decisions based on it. Simply basing prices on costs may not accurately reflect the value of the product or service to the customer.

Question 12

Variable costs,primarily labor and materials,are those costs that vary with:
A) seasonal demand.
B) quality of the product.
C) automation.
D) production volume.
E) All of these.

Accepted Answer

Variable costs are those costs that vary with production volume, meaning that they increase or decrease as the quantity of products produced changes. The other options may also impact costs, but labor and material costs are most closely tied to production volume.

Question 13

One problem in relying on price elasticity and demand curves when setting prices is that:
A) the way a product or service is marketed can have a profound impact on price elasticity.
B) the underlying ideas of the demand curve and elasticity are less relevant in the modern economy.
C) only economists can properly analyze demand curves and set prices using this tool.
D) competitors can construct the same demand curves,so there is no advantage in using them.
E) marketing split from economics over the ideas of demand and elasticity.

Accepted Answer

The way a product or service is marketed can have a profound impact on price elasticity, meaning that relying solely on demand curves and price elasticity may not always give an accurate representation of how price changes will affect demand. Other factors such as brand perception and advertising can also play a significant role in affecting demand for a product or service.

Question 14

If the price for a product increases,the demand for a substitute product will:
A) decrease.
B) increase.
C) stay the same.
D) become more elastic.
E) become more inelastic.

Accepted Answer

When the price of a product increases, consumers typically look for substitutes that are cheaper. This would lead to an increase in demand for the substitute product. Therefore, the correct option is B.

Question 15

Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000.He expects the branch to attract 1,000 new customer accounts in the first year,each of which will cost $50 per year to service.He also expects to generate $100,000 per year in revenue.For Raymond,the total cost of opening the new branch and remaining open for one year will be:
A) $500,000.
B) $550,000.
C) $650,000.
D) $450,000.
E) $605,000.

Accepted Answer

The total cost includes the fixed costs ($500,000) plus the variable costs associated with servicing the new customer accounts (1,000 accounts * $50/account = $50,000), totaling $550,000.

Question 16

Liz and Sarah watched the prices of all the ingredients in their line of specialty sauces go up and up.Now,transportation costs were going through the roof.Liz suggested they could raise prices to cover these expenses because customers would understand.Which of these is the most important factor Liz and Sarah should consider before raising prices?
A) The costs might go back down again.
B) They will have to adjust their promotional literature.
C) Customers do not care about the company's costs; they care about value.
D) Rental costs for their production facility might go up next.
E) Consumers do not think about the cost of additional items; they are concerned mostly with the total cost for a visit to a store.

Accepted Answer

Liz and Sarah need to consider the customer's perception of the value of their product. Even if they experience increased costs, customers may not be willing to pay more for the same product unless they see a corresponding increase in value. Regardless of the other factors, Liz and Sarah need to prioritize their customers' perception of value.

Question 17

Which of the following is the most logical example of complementary products?
A) hot dogs and hamburgers.
B) VCRs and DVD players.
C) hot dogs and hot dog buns.
D) Honda cars and Toyota cars.
E) a brick-and-mortar university and an online university.

Accepted Answer

Complementary products are products that are used together, such as hot dogs and hot dog buns. They enhance each other's value and are often sold together. The other options do not necessarily require or enhance each other's usage.

Question 18

Marketers spend millions of dollars annually trying to create or reinforce brand loyalty.Brand loyalty changes the demand curve for the firm's products by:
A) reducing the price elasticity of demand.
B) making demand more oligopolistic and less monopolistic.
C) increasing the income effect.
D) reducing fixed costs and increasing the gray marketing effect.
E) shifting the market from a monopoly to pure competition.

Accepted Answer

Brand loyalty reduces the price elasticity of demand, meaning that consumers are less sensitive to changes in price and more willing to pay a premium for the brand they are loyal to. This allows the firm to have more pricing power and potentially charge higher prices without losing customers.

Question 19

Often,at the beginning of a semester,professors are encouraged or directed to allow students to be added to a class after the course has started.For the university,the variable cost of adding another student to a class:
A) is the cost of the instructor.
B) is the cost of energy in the classroom.
C) is the cost of adding another administrator.
D) is the cost of expanding the parking lot.
E) is next to nothing.

Accepted Answer

Adding another student to a class after the course has started does not significantly increase the variable costs for the university. The instructor and classroom resources are already in place, and adding one more student does not require any additional administrative or parking resources. Therefore, the cost of adding another student to a class is next to nothing.

Question 20

Labor,materials,and energy are typically __________ costs.
A) fixed
B) incidental
C) prestige
D) inelastic
E) variable

Accepted Answer

Labor, materials, and energy costs are typically variable costs, meaning they fluctuate depending on the level of production or output. In contrast, fixed costs remain constant regardless of the level of output.

Quiz 13: Pricing Concepts for Establishing Value

David manages a Shoney's restaurant.He is considering staying open later in the evening.For David,the variable costs associated with staying open longer hours will include all of the following EXCEPT:

Variable costs change with:

Brad always buys and uses Nike brand golf balls.If he finds a Titleist or Callaway ball in the rough,he gives it away.Brand loyal golfers like Brad allow Nike to charge a higher price and not lose many sales.By building a strong brand,Nike has effectively:

The more substitutes that exist in a market:

Managers of Wendy's fast food restaurants keep track of prices at competitors such as McDonald's,Burger King,and Arby's,knowing that a decrease in the prices at these other fast food restaurants will:

Frank's Heating and Air Conditioning Company specializes in electric heat pumps.Frank keeps track of the price of natural gas,knowing that:

Internet comparison shopping sites like Shopping.com and Pricegrabber.com allow consumers to compare prices of substitute products much more easily than is possible without the Internet.These sites have:

__________ are costs that remain constant as the volume of production increases or decreases.

If the price for a product increases,the demand for the complementary product will:

Bill is a yacht broker in the southeastern United States.For years he has had difficulty selling large yachts locally because there were few places to dock these boats.Yachts and spaces to dock them are an example of:

In general,prices should not be based on costs because:

Variable costs,primarily labor and materials,are those costs that vary with:

One problem in relying on price elasticity and demand curves when setting prices is that:

If the price for a product increases,the demand for a substitute product will:

Which of the following is the most logical example of complementary products?

Marketers spend millions of dollars annually trying to create or reinforce brand loyalty.Brand loyalty changes the demand curve for the firm's products by:

Often,at the beginning of a semester,professors are encouraged or directed to allow students to be added to a class after the course has started.For the university,the variable cost of adding another student to a class:

Labor,materials,and energy are typically __________ costs.