Deck 10: Prices

Question 1

The reimbursement model that is inherently inefficient because it provides an incentive to provide more services is:

A) diagnostic-related groups.
B) cost-based reimbursement.
C) volume-adjusted payments.
D) fee-for-service.

Answer 1

D

Question 2

A market condition where there are a few sellers is referred to as:

A) a pure monopoly.
B) an oligopoly.
C) monopolistic competition.
D) restricted competition.

Answer 2

B

Question 3

With regards to pricing practices in oligopolistic market conditions, there often tends to exist:

A) strong government control.
B) a significant amount of consumer dissatisfaction with regard to pricing practices.
C) a price leader that dictates the direction of price levels.
D) a price structure that is often unrelated to industry cost structure.

Answer 3

C

Question 4

The market condition where many sellers offer substitutable products is described as:

A) monopolistic competition.
B) an overlapping market.
C) an oligopoly.
D) unrestricted competition.

Question 5

In which market condition is the focus of competition most away from price?

A) Unrestricted markets
B) Oligopoly
C) Monopolistic competition
D) Pure monopoly

Question 6

In recent years, hospitals have increased their advertising budgets to draw consumers' attention to different service lines rather than the cost of services. This reflects that they are often operating in what type of market condition?

A) Pure monopoly
B) Oligopoly
C) Unrestricted competition
D) Oligarchy

Question 7

When the threat of new entrants is low, prices tend to be:

A) stable.
B) higher.
C) lower.
D) variable.

Question 8

The greater the intensity of rivalry within an industry, the greater the likelihood that prices will be:

A) constant.
B) variable.
C) lower.
D) higher.

Question 9

Which of the following is a major limitation to profit maximization as a pricing objective?

A) It is very difficult in health care to actually determine profits.
B) It may encourage competitors to offer similar services at lower prices and capture market share, resulting in long-term lower profits for the original organization.
C) Profit maximization results in difficult cross-subsidization problems within a healthcare setting.
D) Skimming strategies lead to regulatory reform.

Question 10

In order to discourage competition, an organization would follow which type of pricing objective?

A) Sales
B) Profit maximization
C) Return on investment (ROI)
D) Cost adjusted

Question 11

In mature industries, a common pricing objective would be:

A) profit maximization.
B) sales.
C) market share.
D) demand adjusted.

Question 12

Setting a high price relative to the competition or the true cost of a product is referred to as:

A) predatory pricing.
B) prestige pricing.
C) preemptive pricing.
D) exclusive pricing.

Question 13

Products or services that are hard to differentiate in a tangible way are often priced using:

A) market share pricing.
B) price stabilization.
C) prestige pricing.
D) ROI pricing.

Question 14

The higher the quality a provider is perceived to have by the marketplace, the more likely the demand for that provider would be:

A) insensitive.
B) sensitive.
C) price elastic.
D) price inelastic.

Question 15

The more a product or service can be positioned as unique, the greater the likelihood that demand will be:

A) high.
B) fixed.
C) inelastic.
D) elastic.

Question 16

Costs that do not change with the volume produced are:

A) fixed costs.
B) total costs.
C) totally allocated costs.
D) unavoidable costs.

Question 17

Total costs represent the combination of:

A) fixed costs and allocated costs.
B) fixed costs and variable costs.
C) variable costs and allocated costs.
D) variable costs and marginal costs.

Question 18

Costs that are not identified with a particular patient or customer are referred to as:

A) unallocated costs.
B) unassigned costs.
C) undetermined costs.
D) indirect costs.

Question 19

When an organization sets a selling price that represents the total cost plus some additional amount for profit, it is using the:

A) marginal profit approach.
B) break-even approach.
C) cost-plus approach.
D) markup pricing approach.

Question 20

When the major consideration for an organization is to ensure that they attract volume to the organization, then it must:

A) be margin sensitive.
B) have a high total cost to marginal cost.
C) have a high variable cost to marginal cost.
D) have a high fixed cost to total cost.

Question 21

Patents for a pharmaceutical product can be extended by:

A) simplifying the dosage.
B) changing one or more ingredients.
C) changing the packaging.
D) applying for a one-time extension under the Patent Extension Act.

Question 22

When an organization is margin sensitive, it has a situation where there are:

A) high fixed costs to total costs.
B) high variable costs to total costs.
C) high marginal costs to total costs.
D) high incremental costs to marginal costs.

Question 23

The break-even point is the point where:

A) total revenue equals total cost.
B) incremental revenue equals incremental costs.
C) marginal revenue equals marginal cost.
D) the slope of the demand curve equals the slope of the cost curve.

Question 24

Marginal pricing is based on the concept that:

A) any marginal revenue that covers incremental cost is valuable.
B) marginal cost always needs to be covered by marginal revenue.
C) pricing for any additional service or product must exceed or equal the cost of the additional product or service.
D) margins must always be achieved in pricing a service.

Question 25

The pharmaceutical industry has been described as having a two-stage pricing approach. Stage one is ___ pricing at introduction and stage two is ____ pricing when the patent expires.

A) penetration; stabilization
B) ROI; premium
C) targeted; marginal
D) premium; marginal

Question 26

When an organization sets a price to achieve a desired rate of return, it is using what type of pricing strategy?

A) ROI pricing
B) Targeted pricing
C) Investment guaranteed pricing
D) Target pricing

Question 27

Capital-intensive industries and businesses tend to utilize which type of pricing methodology?

A) Target pricing
B) Return on investment
C) Markup pricing
D) Prestige pricing

Question 28

Determining what the market is willing to pay and working backward to compute the cost is considered what type of pricing strategy?

A) Cost directed
B) Demand minus
C) Demand sensitive
D) Cost inverted

Question 29

Giving consumers a perception that there are distinct differences between products referred to as "good," "better," and "best" is an example of:

A) odd pricing.
B) prestige pricing.
C) price zoning.
D) price lining.

Question 30

Which of the following has not been given as a reason for odd pricing?

A) Pluralistic ignorance
B) Reduce shrinkage
C) Iconoclastic determinism
D) Perceived discounting

Question 31

Item budget theory suggests that consumers:

A) a priori set a predetermined limit to spend on a product or service.
B) have a budget they spend for all items whether it is groceries, medical care, or entertainment.
C) have a rationale for certain purchases but do engage in impulse shopping for certain items.
D) have certain items that are never accounted for in any budget.

Question 32

In industrial settings where the buyer can exert great power, which pricing strategy is most common?

A) One price
B) Flexible
C) Prestige
D) Markup

Question 33

In prestige pricing, as the price rises, demand:

A) declines and then increases.
B) levels and then sharply rises.
C) remains at the same level.
D) rises, and then eventually declines.

Question 34

For leader pricing to be successful:

A) there must be a strong industry leader who others will follow.
B) the leader must openly declare the price so competitors have enough time to adjust their prices.
C) consumers must recognize the promoted price to be a value.
D) consumers must decide to follow the leader and believe the competitor's products or services are inferior.

Question 35

As medical tourism grows, hospitals outside the United States are promoting services that include the surgery, doctors' fees, and recuperative stays in resorts for one price. This pricing strategy is:

A) price lining.
B) leader pricing.
C) bundled pricing.
D) price leader.

Question 36

Reference pricing is what form of a pricing strategy?

A) Bundled pricing
B) Penetration pricing
C) Price skimming
D) Price lining

Question 37

Which of the following is not an approach to discounting?

A) Functional
B) Time
C) Volume
D) Allowances

Question 38

In offering a volume discount, the seller must demonstrate that:

A) real savings can be achieved if the service is utilized at some level.
B) the buyer deserves a discount if they buy the service.
C) there is no discrimination.
D) all discount prices are transparent to the market.

Question 39

Center of excellence contracting represents which of the following strategies?

A) A flexible pricing approach
B) A discounting approach
C) A market penetration approach
D) An active pricing strategy

Question 40

When price is active in the positioning, it is:

A) always changing.
B) always higher than the competition.
C) always lower than the competition.
D) a very visible part of the promotion.

Question 41

When price is passive, the focus is on:

A) other product attributes.
B) the low nature of the price.
C) the low price relative to the competition.
D) keeping the price at the same level for as long as possible.

Question 42

In oligopolistic market conditions, price increases tend to be greater for not-for-profit hospitals than for for-profit hospitals.

Question 43

In oligopolistic markets, there often tends to be a price leader who dictates the direction of price levels.

Question 44

When there is the likelihood that few new entrants will enter an industry, prices tend to be higher.

Question 45

When there is a lot of unused capacity in an industry, the prices tend to be higher so that the suppliers can make up their lost margin.

Question 46

When buyers have a lot of power because they have consolidated, they can force suppliers to lower their prices.

Question 47

Companies that want to maximize profits will often employ a skimming price strategy.

Question 48

When a health system implements a narrow network plan to insure consumers, the system is using a market-share pricing objective.

Question 49

When organizations need to meet an economy-of-scale point, they often use a skimming pricing strategy.

Question 50

Organizations will often use a penetration pricing strategy to discourage competitors from entering the market.

Question 51

Profit is a major objective in the early stages of competition for a product or service.

Question 52

A market-share pricing objective is often used when a firm needs to reach an economy-of-scale point.

Question 53

Projecting an image of exclusivity or value is the purpose of prestige pricing.

Question 54

With stabilization pricing, all competitors agree to set the same price.

Question 55

Price sensitivity has been found to differ by type of service but not by customer type.

Question 56

When healthcare consumers are shown quality data, demand can become elastic.

Question 57

When the cost of delivering a service does not change with the volume of the service delivered, it is referred to as a fixed cost.

Question 58

Variable costs are those that vary with the number of people who use the service divided by the hours of operation of the service.

Question 59

Indirect costs are those that cannot be identified with a particular customer or business unit.

Question 60

Setting a price by determining the total cost and adding some additional amount for profit is referred to as cost-plus pricing.

Question 61

Total costs are the sum of fixed and variable costs divided by indirect costs.

Question 62

When an organization has high fixed costs to total costs, it is margin sensitive.

Question 63

When an organization has high variable costs to total costs, it is margin sensitive.

Question 64

Volume-sensitive businesses tend to have high fixed cost structures relative to total costs.

Question 65

The point where total revenue equals total cost is the break-even point.

Question 66

Annual fixed costs for an organization are $250,000; the average price per procedure is $250. Variable costs are $150. The break-even point is $250.

Question 67

Marginal cost pricing is useful when trying to attract smaller customer accounts to fill marginal business.

Question 68

A common pricing scheme used by wholesalers and retailers is markup pricing.

Question 69

The Chargemaster used by hospitals shows the allowable rate by Medicare that should be billed to patients.

Question 70

Capital-intensive firms tend to use demand-minus pricing approaches.

Question 71

In target pricing approaches, a firm sets a desired rate of return for the level of delivery of the service, but it does not consider market demand.

Question 72

A Rand study found that despite the consolidation of hospitals, prices of outpatient care were not significantly higher to employers as a result of consolidation.

Question 73

The diagnostic-related group (DRG) system under which hospitals are now paid is based on average historical costs.

Question 74

The "good, "better," "best" approach is often seen in the flexible pricing policy.

Question 75

The bronze, silver, and platinum health insurance plans on state and federal health exchanges may be considered an example of price lining.

Question 76

Coinsurance represents the fixed amount the person pays in getting a medical service.

Question 77

For price lining to be effective, consumers must perceive distinct differences between each line.

Question 78

In order to minimize in-store theft, many retailers have used price lining to force cashiers to make change.

Question 79

A consumer decides bid on eBay for a rare healthcare marketing text. Prior to doing so, the individual says to him- or herself, "I will not spend more than $500 for this first edition." This person is displaying the item budget theory approach.

Question 80

Item budget theory states that a consumer sets a predetermined spending level and will spend no more than 10% above that amount.