Question 1

Gary Thrower is a chimney sweep.He gives large discounts to homeowners who use his services in June and July.This is an example of a seasonal discount.

Accepted Answer

The statement mentions that the chimney sweep offers discounts during the months of June and July, which indicates that the discount is seasonal and only available during a certain time period. Therefore, the statement is true.

Question 2

If the world's largest manufacturer of door knobs and deadbolt locks set wholesale prices below its cost,with the intention of driving its competitors out of business,the manufacturer would be engaged in predatory pricing.

Accepted Answer

Predatory pricing is a strategy used to eliminate competition by setting prices below the cost of production in order to drive competitors out of business. In the given scenario, the manufacturer is setting wholesale prices below its cost with the intention of driving its competitors out of business, which is considered predatory pricing.

Question 3

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 typically involves setting lower prices to gain market share quickly, which results in lower initial profit margins, not higher, making it less attractive for competitors to enter the market.

Question 4

Once he compiles information on pricing objectives,market demand,quantity supplied,and the price elasticity of demand,the marketing manager for a firearms training system will be ready to determine optimal price for a new product extension.

Accepted Answer

The answer of Once he compiles information on pricing objectives,market...

Question 5

Winnipeg Metallic Company,a manufacturer of baking pans,requires its buyers to pay for the cost of transportation from the manufacturing site to their place of businesses.Winnipeg Metallic uses FOB origin pricing.

Accepted Answer

FOB (Free On Board) origin pricing means that the buyer is responsible for paying the cost of transportation from the manufacturing site to their place of business. Therefore, the statement is true.

Question 6

Functional discounts are simple to calculate.The total discount is the retail list price times the accumulated margin percentages.

Accepted Answer

Functional discounts are typically calculated based on the role of the intermediary in the distribution channel, not by simply multiplying the retail list price by the accumulated margin percentages. They are given for performing certain functions like storage, distribution, or sales.

Question 7

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

Accepted Answer

This statement is true. The base price is an approximate price level that manufacturers use to establish a product price.

Question 8

Price fixing is clearly illegal in all instances.

Accepted Answer

Price fixing involves conspiring with competitors to set prices at a certain level in order to eliminate competition and maximize profits. It is a violation of antitrust laws and is illegal in all instances.

Question 9

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

Accepted Answer

These are examples of trade discounts, not rebates. Trade discounts are reductions from the list price given by a seller to a buyer for performing some function, while rebates are typically partial refunds given after the purchase.

Question 10

Price discrimination can sometimes be justified.

Accepted Answer

Price discrimination may be justified if it allows a company to cover its costs more effectively, if it provides access to lower prices for those who may not otherwise be able to afford a product or service, or if it incentivizes certain behaviors (such as purchasing goods at off-peak times) that benefit the company.

Question 11

A company 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

A cash discount is a reduction in price granted by a seller to a buyer for paying cash or settling an account within a specified period of time. In this scenario, the company is allowed to deduct 3 percent from its total bill if it pays by a specific date, which qualifies as a cash discount.

Question 12

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 offering a low price for its new product in order to gain a foothold in the market, which is consistent with a penetration pricing strategy. The fact that the company is relying on economies of scale to meet revenue objectives further supports this strategy.

Question 13

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 14

A manufacturer using uniform delivered pricing is legally discriminating against buyers who are located close to the point of shipping because they pay the same amount as buyers located far from the point of shipping.

Accepted Answer

Uniform delivered pricing charges all buyers the same price regardless of their location, which can disadvantage nearby buyers who incur lower shipping costs, potentially constituting price discrimination.

Question 15

All pricing objectives have tradeoffs that managers must weigh.

Accepted Answer

This statement is true as all pricing objectives have various advantages and disadvantages that managers must consider before choosing one.

Question 16

The two operators of carriage tours in Victoria are in a price war with each other.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 situation described is an example of status quo pricing, where competitors match each other's price reductions in order to maintain their market share.

Question 17

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

Accepted Answer

Price penetration typically involves setting a low price to enter a competitive market and attract customers, whereas a "market-plus" approach would involve setting prices above the market average.

Question 18

Hasbro wants to introduce a new brand of flying disc similar to Wham-O's Frisbee.Hasbro would have a great amount of freedom in choosing a price for its new toy.

Accepted Answer

Hasbro's pricing strategy for a new flying disc would likely be influenced by the existing market price of similar products like Wham-O's Frisbee, consumer expectations, production costs, and competitive pressures, limiting its freedom in choosing a price.

Question 19

It makes the most sense to use price skimming as a pricing policy when demand is relatively elastic in the upper ranges of the demand curve.

Accepted Answer

Price skimming is a strategy of setting a high initial price for a new product and then gradually decreasing the price over time as competition enters the market. This strategy is typically used when demand is relatively inelastic, as consumers are willing to pay a premium for the new product. Therefore, the statement is incorrect as price skimming is not used when demand is relatively elastic.

Question 20

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

Accepted Answer

Price skimming is a pricing strategy where a firm charges the highest initial price that customers will pay for a new product, gradually lowering the price over time. It is more focused on maximizing profits, especially from early adopters willing to pay a premium, rather than being primarily driven by understanding customer value and attributes.

Quiz 17: Setting the Right Price