Question 1

In the context of product considerations in pricing,a _____ is an approach to pricing in which a seller charges a relatively low price on a new product and is used when demand for the product is,at least in the short run,price elastic.

Accepted Answer

Penetration policy is the pricing strategy in which the seller charges a lower price on its new product to gain market share rapidly. This strategy is suitable when demand for the product is price elastic or highly sensitive to price changes, making it less likely for consumers to buy the product when the price is high. By setting a lower price, the seller can attract a large number of customers, establish a foothold in the market, and potentially discourage competitors from entering the market. As the market share increases and the demand becomes more inelastic, the seller may gradually increase the price.

Question 2

A firm tends to use penetration pricing when it:

Accepted Answer

Penetration pricing is a strategy used to quickly gain market share by setting an initially low price to attract customers. This approach is particularly effective when a firm expects competition to enter the market rapidly, as it helps establish a strong customer base and brand recognition before competitors can gain a foothold.

Question 3

Which of the following is an example of an environmental influence on pricing decisions?

Accepted Answer

The answer of Which of the following is an example...

Question 4

Which of the following is one of the biggest environmental influences on pricing decisions?

Accepted Answer

Government regulation is a significant environmental influence on pricing decisions. It includes taxes, subsidies, price controls, and other regulations that affect the prices of goods and services. For example, carbon taxes and cap-and-trade systems on pollution emissions influence prices for industries such as energy, transportation, and manufacturing. Similarly, government regulations on packaging and labeling of food and drugs also affect pricing decisions for producers and retailers. Hence, it is one of the most prominent external factors that businesses must consider while making pricing-related decisions.

Question 5

Which of the following is true of product considerations in pricing?

Accepted Answer

A skimming policy works well when the demand for the product is price inelastic, meaning that consumers are willing to pay a high price for the product regardless of its price. This allows the firm to charge a high price and obtain high profits before competitors enter the market. A penetration policy, on the other hand, is often used when there is significant competition for a product, as the goal is to gain market share by offering a low price. Additionally, there is no inherent relationship between a penetration policy and achieving economies of scale.

Question 6

Leverage Inc.and its competitor,Allen Motors Co. ,were charged for conspiring to keep the end-user price for hatchback cars artificially high.In other words,the two automobile manufacturing companies were charged for:

Accepted Answer

Leveraging Inc. and Allen Motors Co. were charged with conspiring to keep the end-user price for hatchback cars artificially high, which is an example of price fixing. Price fixing is an agreement between competitors to set their prices at a certain level, thus eliminating competition and keeping the prices artificially high.

Question 7

Exclusivez,a leading jeweler,offers a pair of diamond earrings for $2000,a price that is 40 percent lower than that of its competitors.Exclusivez aims to use this strategy to drive its competitors out of business and become the market leader in diamond jewelry.This is an example of _____.

Accepted Answer

Predatory pricing is a strategy where a company deliberately sets low prices to force competitors out of business and then increase prices later, once the competition is eliminated. This seems to be the strategy being followed by Exclusivez as it is offering the diamond earrings at a significantly lower price than its competitors, with the aim of driving them out of business and becoming the market leader.

Question 8

_____ is an example of pricing below competition,in which the firm is bidding directly against competition for project contracts.

Accepted Answer

Sealed-bid pricing is the pricing strategy of bidding directly against competition for project contracts. In this strategy, firms submit sealed bids, and the lowest bidder wins. This pricing strategy is commonly used in industries such as construction and engineering, where projects are awarded to the lowest bidder.

Question 9

Price discrimination,which lessens competition or is deemed injurious to it,is outlawed by the _____.

Accepted Answer

Price discrimination that harms competition is prohibited by the Robinson-Patman Act. The Taft-Hartley Act deals with labor relations, the Clayton Act prohibits anticompetitive mergers and acquisitions, and the Federal Trade Commission Act empowers the FTC to regulate unfair methods of competition.

Question 10

Herald Inc.is a leading producer of software technology and cloud computing devices.In an attempt to further its goal of innovation,Herald introduces a technologically advanced one-of-a-kind user interface at a relatively high price.By doing so,Herald seeks temporary monopoly until competitors move in.This is a typical example of a(n)_____.

Accepted Answer

The scenario describes Herald Inc. introducing a new and technologically advanced product at a high price. This is consistent with a skimming pricing policy, where companies launch their products at high prices to target early adopters who are willing to pay a premium for the latest technology. The company may then lower prices over time as competition enters the market, and the product becomes more widely adopted. A skimming policy allows a company to capture a significant share of the market and generate high profits in the short term.

Question 11

How is a skimming policy different from a penetration policy?

Accepted Answer

A skimming policy is used when demand for a product is price inelastic, meaning customers are willing to pay a higher price for the product, while a penetration policy is used when demand for a product is price elastic, meaning customers are more price-sensitive and will only buy the product at a lower price. Skimming is typically used for high-end or luxury products, while penetration is used for mass-market or low-cost products.

Question 12

Pricing a product at the average price charged by an industry is called _____ and is popular for homogeneous products.

Accepted Answer

Going-rate pricing involves pricing a product at the industry average price for a homogeneous product. It is a common pricing strategy in such situations.

Question 13

Which of the following is most likely to be a reason for a firm to price a product above competition?

Accepted Answer

If the firm is a price leader in the industry, there is a perception among consumers that the firm's product is of higher quality compared to competition. This allows the firm to price its product above competition without losing customers.

Question 14

Rubrix,a leading animation and gaming company,launches its video game console at an introductory price of $189.00,which is relatively low for products of this category.The reasoning behind this low pricing is that Rubrix expected fierce competition to move in rapidly.Also,the demand for video game consoles varied according to the price sensitivity of prospective customers.Identify the pricing policy used here.

Accepted Answer

Rubrix is using a penetration pricing policy by offering its gaming console at a lower price than its competitors. This is done to quickly capture market share and gain a competitive advantage. By offering an attractive price, Rubrix hopes to entice price-sensitive customers and generate higher sales volumes, which can help it penetrate the market and establish a loyal customer base. As competition intensifies, the company can adjust its pricing strategy accordingly.

Question 15

Deceptive pricing practices are outlawed under the _____.

Accepted Answer

Deceptive pricing practices are considered a violation of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices in commerce. The Sherman Antitrust Act and Taft-Hartley Act focus on issues related to anti-competitive behavior and labor relations, respectively. The Fair Pricing Act is not a real law.

Question 16

Marking merchandise with an exceptionally high price and then claiming that the lower selling price actually used represents a legitimate price reduction is an example of _____.

Accepted Answer

This scenario describes a deceptive pricing tactic. By initially marking the merchandise with an artificially high price, the seller is attempting to deceive the customer into thinking they are getting a good deal when the item is actually sold at a "lower" price. This tactic is often illegal and unethical.

Question 17

In the context of government regulations,which of the following is the primary device used to outlaw horizontal price fixing?

Accepted Answer

The Sherman Antitrust Act is the primary device used to outlaw horizontal price fixing. It prohibits contracts, conspiracies, and agreements in restraint of trade and outlaws monopolies and attempts to monopolize. The Clayton Act and Robinson-Patman Act also have provisions related to antitrust and competition, but they address other aspects such as anti-competitive mergers and discriminatory pricing, respectively. The Taft-Hartley Act primarily regulates labor relations.

Question 18

For which of the following products is a seller most likely to use a going-rate pricing strategy?

Accepted Answer

A going-rate pricing strategy involves setting prices based on the prices charged by competitors in the market. Whole milk is a commodity product, which means that there are many suppliers and buyers in the market, and there is little differentiation between brands. As a result, milk sellers are likely to use a going-rate pricing strategy to stay competitive and maintain their market share. In contrast, sports cars and designer furniture are luxury goods, and wedding apparel is typically customized or tailored for individual customers, making them less likely to be priced based on market rates.

Question 19

A razor manufacturer introduces its new three-blade razor at a relatively low price to counter competition and to encourage more consumers to purchase it.Through this approach to pricing,the razor manufacturer hopes to create a rapid mass market within a short span of time and obtain large economies of scale.This is an example of _____.

Accepted Answer

The razor manufacturer is introducing the new product at a low price to encourage more consumers to purchase it and create a rapid mass market. This strategy is known as penetration pricing, which involves setting a low price to penetrate the market quickly and gain a large market share. It is commonly used by companies to introduce new products and create brand awareness.

Question 20

Which of the following kinds of pricing strategies would you expect producers to use for pricing homogeneous products,such as wool,tomatoes,wheat,coal,and bone meal?

Accepted Answer

Producers of homogeneous products typically use going-rate pricing strategy, which means setting the price based on the prevailing market price for the product. Since the product is undifferentiated, price becomes the main competitive factor, and producers have limited scope to use other pricing strategies such as skimming or penetration pricing. Sealed-bid pricing is typically used in competitive bidding situations where buyers submit sealed bids for a specific product or contract.

Quiz 11: Pricing Strategy