Deck 9: Pricing

Question 1

Target profit pricing refers to setting prices that give a profit that is a specified percentage of the sales volume.

Answer 1

False

Question 2

Often, a firm that is selling not just a single product but a line of products may price them at a number of different specific pricing points, which is called odd-even pricing.

Answer 2

False

Question 3

For many consumers, the higher the price, the lower the perceived quality of the product.

Answer 3

False

Question 4

The demand for a product falls as the prices of its substitutes fall.

Question 5

Skimming pricing is a suitable demand-oriented approach when a firm is trying to attract price-sensitive customers.

Question 6

"Get double Heped!! Buy two for the price of one!!!" is a promotion by Hep & Happy, a retailer of women's slim fit jeans.The retailer has, however, doubled the price charged for a pair of slim fit jeans.This is an example of double ticketing.

Question 7

Value is considered to be the ratio of perceived benefits to the price.

Question 8

Retailers sometimes deliberately sell commonly used products, such as paper towels, soft drinks, and facial tissues, at very low prices to attract consumers who, the retailer hopes, will also buy other, regularly priced merchandise.This is referred to as below-market pricing.

Question 9

A target return objective is one in which a company gives up immediate profit in exchange for achieving a higher market share.

Question 10

Companies often pursue a market share objective when industry sales are relatively flat or declining.

Question 11

Tuition, rent and insurance premiums are all examples of price.

Question 12

Dumping comes about when individuals buy products in a lower-priced country from a manufacturer's authorized retailer, ship them to higher-priced countries, and then sell them below the manufacturer's suggested retail price through unauthorized retailers.

Question 13

If consumers can easily find close substitutes for a good or service, the product's demand tends to be inelastic.

Question 14

By offering lower interest rates, a company chooses to lower profits in the short run to sell its product quickly.

Question 15

Direct labour and direct materials used in producing an item are examples of fixed costs.

Question 16

Penetration pricing discourages competitors from entering the market.

Question 17

The older the product and the later it is in its life cycle, the higher the price that can usually be charged.

Question 18

The availability of different suppliers on the Internet combines to create more products with inelastic demand.

Question 19

Price is unique in the 4 Ps as it is the only element that can affect both Total Revenues and Total Costs.

Question 20

The break-even point (BEP) is the quantity at which total revenue and total cost are equal.

Question 21

Which of the following is NOT one of the four general approaches to pricing:

A)Demand oriented
B)Cost oriented
C)Competition oriented
D)Break-even oriented

Question 22

Live 'n' Homes, a company that manages apartments, decides to buy 17 new dishwashers at a list price of $750 each as replacements for old dishwashers.The merchant offers a $150 discount per unit on a purchase of more than 10 dishwashers.The company will get $10 per dishwasher for the 17 dishwashers traded in.If the financing charges total to $20 per unit, what is the price the company will pay for each dishwasher?

A)$590
B)$600
C)$610
D)$730

Question 23

Most consumers believe that the higher the price of the diamond, the higher its quality is.This is an example of price influencing the perception of overall quality and _____ to consumers.

A)acceptable cost
B)volume
C)value
D)trade-in allowances

Question 24

Value pricing is the:

A)ratio of perceived benefits to price.
B)practice of increasing a product's benefits while maintaining or decreasing price.
C)practice of simultaneously increasing product and service benefits and increasing price.
D)ratio of price to perceived benefits.

Question 25

Setting the highest initial price that customers really desiring the product are willing to pay is _____.

A)skimming pricing
B)penetration pricing
C)price lining
D)odd-even pricing

Question 26

A manufacturer using _____ is setting a high price so that status-conscious consumers will be attracted to the product and buy it.

A)skimming pricing
B)prestige pricing
C)price lining
D)odd-even pricing

Question 27

Trendsetter Inc.manufactures self-branded women's sportswear.The label has become synonymous with style and quality.A simple tank top with the Trendsetter label costs $48.Similar tank tops are also available at regular stores for $5 each, but without the Trendsetter label.What kind of demand-oriented approach to pricing is being used by Trendsetter Inc.to market the tank tops?

A)experience curve pricing
B)target market share pricing
C)demand-backward pricing
D)prestige pricing

Question 28

Sails Ahoy, a small company that makes model sailboat kits priced at $120 each, spends $45 on materials and $5 in labour to produce each kit.The company incurs monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for the proprietor's salary.If Sails Ahoy sells 150 kits in a given month, its monthly profit will be _____.

A)$5,300
B)$10,500
C)$12,700
D)$12,800

Question 29

Odd-even pricing is most closely related to:

A)retailers' perceptions of price.
B)customers' perceptions of price.
C)wholesalers' markups.
D)manufacturers' costs.

Question 30

Seasonal discounts are used by firms to encourage customers to buy larger quantities of a product.

Question 31

The manufacturer of a new variety of fat-free ice cream that has the consistency and taste of regular ice cream is considering using a skimming pricing strategy for its new product.Which of the following conditions would suggest using a skimming pricing strategy for the tasty fat-free ice cream?

A)The ice cream market is highly conservative.
B)A large portion of the market has inelastic demand for fat-free ice cream, over a fairly broad range of prices.
C)Economies of scale in production are substantial.
D)Retailers are willing to pay for new brands of premium ice cream in an extremely overcrowded category.

Question 32

Marthey and Lawrey's Inc.is a manufacturer of scopes for rifles.To appeal to a larger market, the company has introduced a new lower-priced scope with the same quality and performance as its other previous products.Which pricing strategy is Marthey and Lawrey's Inc.using?

A)skimming pricing
B)penetration pricing
C)price lining
D)odd-even pricing

Question 33

Clean-up, a manufacturer of dishwashers, concluded that consumers would be willing to pay approximately $989 for a dishwasher that was quieter than any other machine on the market.Based on this price, Clean-up determined the margins that would have to be allowed for wholesalers and retailers to give the $989 retail price.In this scenario, Clean-up used _____.

A)prestige pricing
B)price lining
C)bundle pricing
D)target pricing

Question 34

The practice of exchanging goods and services for other goods and services rather than for money is called _____.

A)bundle pricing
B)pricing substitution
C)barter
D)value pricing

Question 35

Target pricing is the result of a manufacturer _____ in a product to achieve the target price.

A)setting the highest costs possible
B)deliberately adjusting the cost and quality of the component parts
C)researching what markups wholesalers will accept
D)studying competitive prices and making fixed-cost adjustments

Question 36

Which of the following statements about penetration pricing is true?

A)Penetration pricing is a profit-oriented approach to pricing.
B)Penetration pricing is a cost-based pricing method.
C)Penetration pricing encourages competitors to enter a market.
D)A penetration pricing strategy is more effective in a marketplace with price-sensitive consumers.

Question 37

A firm's profit equation demonstrates that its profit equals _____.

A)total cost + total revenue
B)total revenue - total cost
C)total cost - marginal cost
D)total cost - variable cost

Question 38

Odd-even pricing is:

A)setting prices one way for product lines and another way for individual brands.
B)setting prices of luxury items at even price points and setting the price of necessities at odd price points.
C)setting prices a few dollars or cents under an even number.
D)a method of pricing where price often falls following the reduction of costs associated with the firm's production experience.

Question 39

In a flexible-price policy, prices are set based on individual buyers and purchase situations in light of demand, cost, and competitive factors.

Question 40

When microwave ovens were in the introduction stage of the product life cycle, some consumers were willing to pay exorbitant prices for the innovative ovens.Taking advantage of this strong consumer desire, marketers set the price for microwave ovens at the highest initial price that customers with a very strong desire for the product were willing to pay.Marketers of microwave ovens were using a _____ pricing strategy.

A)skimming
B)penetration
C)prestige
D)price lining

Question 41

_____ is a competition-based method of pricing where tradition, a standardized channel of distribution, or other competitive factors dictate the price of a product.

A)Standard markup pricing
B)Cost-plus-percentage-of-cost pricing
C)Customary pricing
D)Experience curve pricing

Question 42

Lady Marion Seafood, Inc.sells five-pound packages of Alaska salmon.Its variable cost per package is $30, and its fixed cost is $250,000.It wants a target profit of $38,000 on a volume of 16,000 packages.What should it charge for a five-pound package of salmon?

A)$25
B)$30
C)$40
D)$48

Question 43

Target return-on-investment pricing is:

A)setting the price of a line of products at a number of different price points.
B)adding a fixed percentage to the cost of all items in a specific product class.
C)setting prices to achieve a profit that is a specified percentage of the sales volume.
D)setting prices to achieve a specified percentage return-on-investment.

Question 44

Which of the following statements about cost-oriented approaches is true?

A)These methods focus on the demand side of the pricing problem and involve stimulating demand and decreasing revenue.
B)In the cost-based approaches, price is set by looking at the production and marketing costs and then adding enough to cover direct expenses, overhead, and profit.
C)Target return on investment is an example of a cost-based method.
D)Experience curve pricing, a type of cost-based approach, is simple to use because costs predictably decrease by 25 percent with each doubling of production.

Question 45

Evergreen Inc.is a distributor of high-quality fruit, flowering, and shade trees.Every client of Evergreen Inc.is supplied with a catalogue since the prices tend to change with seasons. The catalogue specifies that an order of an assortment of five different trees will cost $89.99 each as opposed to $108.99 each when ordered separately.Evergreen Inc.uses _____.

A)standard markup pricing
B)bundle pricing
C)prestige pricing
D)price lining

Question 46

Target return-on-sales pricing is:

A)adjusting the price of a product so that it is "in line" with that of its largest competitor.
B)setting the price of a line of products at a number of different price points.
C)adding a fixed percentage to the cost of all items in a specific product class.
D)setting prices to achieve a profit that is a specified percentage of the sales revenue.

Question 47

Nature's Taste, a manufacturer of floral jellies made from pansies, honeysuckle, and wisteria, prices its jellies by adding 30 percent to the cost of everything that goes into making the jellies including salaries, jars, sugar, and pectin.Which of the following pricing methods is being used here?

A)target return-on-sales pricing
B)flexible pricing
C)yield management pricing
D)standard markup pricing

Question 48

Update, a weekly, ran a pricing experiment that involved setting different prices for its magazine in different cities and counting the number of units sold.After adjusting for factors such as the population of the different cities, Update was able to plot these prices and units to result in a(n) _____.

A)target return curve
B)demand curve
C)unit volume curve
D)consumer tastes curve

Question 49

Kate & Hark's, a custom kitchen cabinet store, has received a bulk order for the supply of 400 cabinets.The variable cost incurred is $200 per unit and the fixed cost is $44,000. If a target profit of 20 percent of sales is desired, what price should be charged for a typical cabinet section?

A)$372.00
B)$311.00
C)$445.50
D)$387.50

Question 50

Evergreen Inc.is a distributor of high-quality fruit, flowering, and shade trees.Every client of Evergreen Inc.is supplied with a catalogue since the prices tend to change with seasons. The prices of all the trees in the Evergreen Inc.catalogue end in $.99.The distributor uses _____.

A)odd-even pricing
B)dynamic pricing
C)price lining
D)bundle pricing

Question 51

Standard markup:

A)adjusts the price of a product so that it is "in line" with that of its largest competitor.
B)sets the price of a line of products at a number of different price points.
C)is the difference between selling price and cost, divided by cost.
D)sets prices to achieve a profit that is a specified percentage of the sales volume.

Question 52

Rather than billing clients by the hour, a group of lawyers and their clients agree on a fixed fee based on expected expenses plus a profit for the law firm.Which pricing method are they using?

A)target pricing
B)cost-plus pricing
C)customary pricing
D)experience curve pricing

Question 53

A computer retailer shrink-wraps Microsoft Works to its private-labelled Pentium IV computer and sells the microcomputer and software for $2,500.This pricing scenario might best be described as _____.

A)price lining
B)loss-leader pricing
C)bundle pricing
D)prestige pricing

Question 54

Julia owns a boutique store in which she sells a variety of home décor products.She works backward through markups given to wholesalers and to herself to determine what price she can charge for the products.Which of the following approaches to pricing is she using here?

A)yield management pricing
B)experience curve pricing
C)bundle pricing
D)target pricing

Question 55

_____ is charging different prices to maximize revenue for a set amount of capacity at any given time.

A)Demand backward pricing
B)Penetrating pricing
C)Yield management pricing
D)Skimming pricing

Question 56

Target profit pricing is:

A)adjusting the price of a product so that it is "in line" with that of its largest competitor.
B)setting the price of a line of products at a number of different price points.
C)adding a fixed percentage to the cost of all items in a specific product class.
D)setting an annual goal of a specific dollar amount of profit.

Question 57

Using _____ pricing, many retailers deliberately sell products below their normal prices (and sometimes below cost) to attract attention and induce additional store traffic.

A)customary
B)above-market
C)loss-leader
D)prestige

Question 58

Which of the following types of pricing involves summing the total unit expenditure of providing a product or service and adding a specific amount to the expenditure to arrive at the price?

A)standard markup pricing
B)experience curve pricing
C)cost-plus pricing
D)penetration pricing

Question 59

Parell's, a shampoo manufacturer, carried an ad campaign where it asked television viewers to identify the hair that was shampooed and conditioned with Parell's products and the hair on which expensive salon hair-care products were used.The idea of the ad was to make the viewers realize that a person could not distinguish between the hair that used the comparatively cheaper Parell's brand from hair that used the very expensive salon brand.By making price its selling point, Parell's is most likely using _____.

A)demand backward pricing
B)below-market pricing
C)loss-leader pricing
D)skimming pricing

Question 60

Kate & Hark's, a custom kitchen cabinet store, has received a bulk order for the supply of 400 cabinets.The variable cost incurred is $200 per unit and the fixed cost is $44,000. If a target profit of $10,000 on a volume of 400 cabinets is desired, what price should be charged for a typical cabinet section?

A)$335
B)$310
C)$455
D)$398

Question 61

_____ refers to how sensitive consumer demand and the firm's revenues are to changes in the product's price.

A)Marginal revenue
B)Price elasticity of demand
C)Average demand
D)Marginal demand

Question 62

The owner of Clock Winds incurs a fixed cost of $20,000 for equipment, taxes, and its bank loan.The unit variable cost for labour, materials, and promotional costs is $20.If the price charged for each clock is $40, what is the break-even point quantity?

A)800
B)1,500
C)1,000
D)1,200

Question 63

Walk Easy Inc., a manufacturer of heel replacement kits for men's shoes, incurs fixed costs of $6 million and unit variable cost of $5. Walk Easy Inc.is considering a switch from manual labour to an automated process.New equipment would cost an additional $4 million per year and it will lower the unit variable cost by $2.How many kits would Walk Easy have to sell at $15 per pair to make $2 million in profits in the next year using the automated process?

A)169,231
B)666,667
C)705,883
D)1,000,000

Question 64

Helen sells hand-crafted jewelry through her website and social media accounts.Helen purchases the materials and assembles the pieces after a customer places an order.For Helen, the materials she purchases for the jewelry are

A)Variable costs
B)Fixed costs
C)Undeclared costs
D)Gross margin

Question 65

Uniform delivered pricing means the:

A)title of goods remains with the manufacturer until sold to the ultimate consumer.
B)pricing and title of goods passes to the buyer upon arrival at final destination.
C)title of the goods passes to the buyer at the point of shipment.
D)price the seller sets includes all transportation costs.

Question 66

Which of the following is a typical example of a fixed cost?

A)sales taxes
B)building rental expense
C)raw materials
D)sales commissions

Question 67

Which term describes the factors in the marketplace that limit the range of price a firm may set, such as newness of the product, demand for the product class, and competitors' prices?

A)grey market conditions
B)pricing constraints
C)organizational costs
D)profit maximization objectives

Question 68

Which of the following statements about pricing objectives is true?

A)Market share and unit volume are synonymous.
B)Unit volume is not a type of pricing objective because it is a production strategy.
C)Firms that are interested in strategic planning set their objectives to maximize current profit.
D)Profit objectives are frequently measured in terms of return on investments.

Question 69

Walk Easy Inc., a manufacturer of heel replacement kits for men's shoes, incurs fixed costs of $6 million and unit variable cost of $5. Walk Easy Inc.fixes a sale target of 700,000 heel repair kits.What price must be charged to achieve a profit of $2.5 million?

A)$3.58
B)$7.58
C)$12.15
D)$17.14

Question 70

Inelastic demand exists when:

A)a slight increase or decrease in price will not significantly affect the demand, or units sold for the product.
B)a small percentage decrease in price produces a larger percentage increase in quantity demanded and total revenue increases.
C)an increase in price causes a larger increase in quantity demanded and total revenue falls to zero.
D)a small percentage decrease in price produces a smaller percentage decrease in quantity demanded and total revenue increases.

Question 71

The owner of a small restaurant that sells take-out fried chicken spends monthly amounts of $2,500 in rent, $500 in utilities, $750 in loan interest, $200 in insurance premium, and $250 for advertising on local buses.A bucket of take-out chicken is priced at $9.50.Unit variable costs for the bucket of chicken are $5.50. How many buckets of chicken does the restaurant need to sell to break even?

A)988
B)1,000
C)1,050
D)3,150

Question 72

A shift in the demand curve means:

A)the availability of substitutes remains the same.
B)at a given price, more (or less) product is sold.
C)consumer incomes remain the same.
D)consumer tastes remain the same.

Question 73

Which of the following statements about the factors that influence demand is true?

A)As the availability of close substitutes increases, the demand for a product increases.
B)As real consumer income increases, demand for a product increases.
C)As the price of close substitutes increases, demand for a product declines.
D)Changing consumer tastes have little impact on demand for a product.

Question 74

Factors that determine consumers' willingness and ability to pay for goods and services are called _____.

A)economic environmental factors
B)consumer price indices
C)demand factors
D)elasticity factors

Question 75

The owner of a small restaurant that sells take-out fried chicken spends monthly amounts of $2,500 in rent, $500 in utilities, $750 in loan interest, $200 in insurance premium, and $250 for advertising on local buses.A bucket of take-out chicken is priced at $9.50.Unit variable costs for the bucket of chicken are $5.50. At what level of sales, in dollars of revenue, will the restaurant break even?

A)$9,386
B)$9,500
C)$9,975
D)$29,925

Question 76

Walk Easy Inc., a manufacturer of heel replacement kits for men's shoes, incurs fixed costs of $6 million and unit variable cost of $5. If Walk Easy Inc.charges $15 per kit, how many kits must be sold to break even?

A)300,000
B)400,000
C)600,000
D)1,200,000

Question 77

Several companies produce latex gloves that are used in a variety of different industries.If one of the glove manufacturers decreases its price by just a few percentage points, it will result in a significant increase in the quantity demanded from this manufacturer.The demand for latex gloves is _____.

A)synergistic
B)elastic
C)inelastic
D)direct

Question 78

Elastic demand exists when:

A)a small percentage decrease in price produces a smaller percentage increase in quantity demanded and total revenue falls.
B)a small percentage decrease in price produces a larger percentage increase in quantity demanded and total revenue increases.
C)an increase in price causes a larger increase in quantity demanded and total revenue falls to zero.
D)a small percentage decrease in price produces a smaller percentage decrease in quantity demanded and total revenue increases.

Question 79

Other things equal, if a firm finds the demand for one of its products is inelastic, it can increase its total revenues by _____.

A)raising its price
B)lowering its price
C)reducing fixed costs
D)raising its variable costs

Question 80

When a cereal manufacturer divides the sales revenue in a single year obtained by all its breakfast cereal brands by the breakfast cereal sales of all its competitors plus its own for that same year, it is calculating its _____.

A)unit volume
B)long-run profit
C)current profit
D)market share