Question 1

Predatory pricing is:
A)the practice of charging a very low price for a product with the intent of driving competitors out of business.
B)a conspiracy among firms to set prices for a product or service.
C)the practice of charging different prices to different buyers for goods of like grade and quality.
D)an arrangement a manufacturer makes with a reseller to handle only its products and not those of a competitor.

Accepted Answer

Predatory pricing is the practice of charging a very low price for a product with the intent of driving competitors out of business. This is done in order to create a monopoly in the market, where the company can then raise prices to higher levels without fear of competition.

Question 2

The total money received from the sale of a product is called:
A)total revenue.
B)marginal revenue.
C)total profit.
D)average revenue.

Accepted Answer

Total revenue is the total amount of money received from the sale of a product or service. It is calculated by multiplying the price of the product or service by the quantity sold. Marginal revenue is the additional revenue obtained from selling one more unit of the product, while total profit is the revenue minus the cost of producing the product. Average revenue is the revenue per unit sold, calculated by dividing total revenue by the quantity sold.

Question 3

An ad campaign by Suave shampoo asked television viewers to identify the hair that was shampooed and conditioned with Suave products and the hair on which expensive salon hair-care products were used. The idea of the ad was that a person could not tell by looking that a woman was using the much cheaper Suave brand. By making price its selling point, Suave is most likely using:
A)demand backward pricing.
B)loss-leader pricing.
C)below-market pricing.
D)prestige pricing.

Accepted Answer

Suave is using below-market pricing by emphasizing that their products offer similar quality to more expensive salon brands at a lower price, making the cost a key selling point.

Question 4

When Sherman bought gas, he noticed the convenience store offered him a 3 percent reduction in price if he paid cash rather than used his credit card. The convenience store was offering him a:
A)cash discount.
B)rebate.
C)trade discount.
D)promotional allowance.

Accepted Answer

A cash discount is a reduction in price offered to customers who pay with cash rather than credit. This is exactly what Sherman experienced at the convenience store, making A the correct choice. A rebate is an amount refunded to a customer after a purchase is made, C and D are discounts given by manufacturers to retailers and not relevant in this scenario.

Question 5

Most consumers realize the quality of diamonds varies, and most believe the higher the price of the diamond, the higher its quality. This is an example of price influencing the perception of overall quality, and_________ to consumers.
A)acceptable cost
B)return on investment
C)value
D)perceptual investment

Accepted Answer

The statement suggests that consumers believe that the higher the price of a diamond, the higher its quality, indicating that consumers associate value with price.

Question 6

You are president of a manufacturing unit of small electronic appliances. You want to reduce your break-even quantity. Other things equal, you can do this by:
A)reducing marginal revenue.
B)increasing fixed cost.
C)increasing the quantity sold, while keeping price unchanged.
D)reducing unit variable cost.

Accepted Answer

Reducing unit variable cost would shift the cost curve downwards and reduce the break-even quantity. This can be done by finding ways to reduce production costs, such as using cheaper materials or improving production efficiency. A reduction in marginal revenue or an increase in fixed cost would have the opposite effect and increase the break-even quantity. While increasing quantity sold may increase revenue, if the cost of producing each unit remains the same, it will not reduce the break-even quantity.

Question 7

A car manufacturer launches a 2014 version of their newest vehicle and has internally stated that each car will have a profit margin of 25%. Manufacturing and marketing need to know this number so they can plan accordingly. The stated profit margin of 25% is an example of a(n):
A)pricing objectives.
B)a pricing plan.
C)a business mission.
D)pricing constraints.

Accepted Answer

The stated profit margin of 25% is an example of a pricing objective, which is a specific goal for pricing a product or service.

Question 8

The pricing model in the text has six distinct steps in the pricing process. In which step would you be reviewing the following approaches: demand-oriented, cost-oriented, profit-oriented, and competition-oriented?
A)Step 1 in the pricing process
B)Step 2 in the pricing process
C)Step 3 in the pricing process
D)Step 4 in the pricing process

Accepted Answer

The answer of The pricing model in the text has...

Question 9

Everyday low pricing (EDLP)is the practice of replacing_________with lower manufacturer list prices.
A)discounts
B)trade discounts
C)promotional allowances
D)trade allowances

Accepted Answer

The answer of Everyday low pricing (EDLP)is the practice of...

Question 10

Different brands within a company's product line generally have different profit margins; higher price lines have higher profit margins. For example, Nike Variety tennis shoes have variable costs of $6 and sell for $24; whereas, Nike Wimbledon tennis shoes have variable costs of $10 and sell for $48. It must be true that:
A)Nike is using a cost-plus percentage-of-cost pricing strategy.
B)demand is unrelated to product quality.
C)Nike is using a price lining strategy.
D)demand is unrelated to price.

Accepted Answer

Nike is using a price lining strategy where different product lines have different prices and profit margins. The higher-priced product line, Wimbledon tennis shoes, has a higher profit margin than the lower-priced Variety tennis shoes. This strategy is used to target different customer segments and offer products that meet different needs at different price points. This also implies that demand is related to price, as customers are willing to pay more for the higher-priced product.

Question 11

At a local coffee shop, where you frequent, you are enrolled in their frequent-buyer program, where, for every ten coffees you purchase, you get one for free. Essentially, the coffee shop is engaged in offering a(n):
A)cash discount
B)promotional allowance
C)quantity discount
D)functional discount

Accepted Answer

The coffee shop is offering a quantity discount, as the free coffee is given after a certain quantity (10 coffees) is purchased. This encourages customers to make repeat purchases in order to receive the discount.

Question 12

If you buy one pair of Uvex Clear UVExtreme safety eyewear, the cost is $7.40, but if you buy ten at one time, the price per pair is reduced to $6.85. This is an example of a:
A)promotional allowance.
B)bundle pricing.
C)quantity discount.
D)cumulative quantity discount.

Accepted Answer

This is a clear example of a quantity discount, where the price per unit decreases as the quantity purchased increases.

Question 13

When Panera Bread opened Panera Cares Cafe, they implemented a pricing model that allowed consumers to pay what they wished for their items. This pricing model is referred to as:
A)profit maximizing
B)self-sustaining
C)name your price
D)profit minimizing

Accepted Answer

The pricing model implemented by Panera Cares Cafe is referred to as "name your price," as customers are given the freedom to choose how much they want to pay for their items. This model is not focused on profit maximization or minimization, but rather on creating a self-sustaining system where customers are able to pay what they feel is fair, and the cafe is still able to cover its costs.

Question 14

Trade (functional)discounts are calculated on two criteria. What are the two criteria?
A)Where the reseller is in the channel; the marketing activities the reseller performs in the future.
B)When the reseller joins the channel; the marketing activities the reseller performs in the future.
C)When the reseller joins the channel; the marketing activities the reseller performs immediately.
D)Discounts based on paying cash; the marketing activities the reseller performs.

Accepted Answer

Trade (functional) discounts are typically determined by where the reseller is positioned within the distribution channel and the specific marketing activities they undertake in the future. These criteria help manufacturers or suppliers incentivize and reward resellers for their role in distributing and promoting the product.

Question 15

The pricing model in your text, has six distinct steps in the pricing process. Considering the following list of steps in setting prices: identify pricing objectives and constraints; estimate demand and revenue; determine cost, volume, and profit relationships; select an approximate price level; set the list or quoted price; and ________.
A)scan competitors for price lines of similar products or services
B)select the appropriate pricing formula
C)test market the product or service to check for elasticity of demand
D)make special adjustments to the list or quoted price

Accepted Answer

The sixth and final step in the pricing process is to make special adjustments to the list or quoted price. This step involves considering factors such as discounts, allowances, and promotional pricing to fine-tune the final price to maximize profits and achieve pricing objectives.

Question 16

The Precision Writing Instruments Company makes two pen designs - the Cordova design and the Savannah design. These data apply, regardless of which of two pen designs is being implemented. Materials cost per pen is $6. Labour cost per pen is $5. Production overhead is $1,000,000. Advertising and promotion is $1,000,000. Marketing research has estimated the following demand functions for the next year of sales for the two pen designs where Q represents demand in thousands and P represents price. For the Cordova design, Q = 150 - 2.5P. For the Savannah design, Q = 175 - 2.1P. A penetration strategy is proposed for the Savannah design and a price of
$25 is selected. What will be the profit or loss for the first year?
A)$306,250 loss
B)$2,112,500 profit
C)$2,222,500 profit
D)$285,000 loss

Accepted Answer

To calculate the profit or loss for the Savannah design at a price of $25, we first determine the demand using the given demand function Q = 175 - 2.1P. Substituting P = $25, we get Q = 175 - 2.1(25) = 175 - 52.5 = 122.5 thousand units. The total revenue is then 122.5 thousand units * $25 = $3,062,500. The total variable cost is the sum of materials and labor costs per pen, which is $6 + $5 = $11 per pen, leading to a total variable cost of 122.5 thousand * $11 = $1,347,500. The fixed costs are the sum of production overhead and advertising, which is $1,000,000 + $1,000,000 = $2,000,000. Therefore, the total cost is $1,347,500 + $2,000,000 = $3,347,500. The profit or loss is the total revenue minus the total cost, which is $3,062,500 - $3,347,500 = -$285,000, indicating a loss of $285,000.

Question 17

A new special on this week at your local dress shop is a 2 for 1 dress special with free tailoring. Last week, it was regular pricing on everything and tailoring was being charged $25.00 a dress. The marketers at this dress shop are engaging in:
A)revenue sharing
B)value-pricing
C)quantitative analysis
D)diminishing returns

Accepted Answer

The dress shop is engaging in value-pricing by offering a special deal for a limited time, making the dresses more valuable to customers at a discounted price. The free tailoring also adds value to the offer.

Question 18

Suppose a shop owner sets a target ROI of 10 percent, which is twice that achieved the previous year. She considers raising the average price of a framed picture to $54 or $58-up from last year's average of $50. In order to still achieve her target, she might:
A)add value to the framed picture that adds minimal fixed and variable costs, yet consumers are willing to accept
B)use noticeable cheaper quality materials to lower her costs
C)mislabel her price of goods in her income statement to reflect the targeted ROI
D)include bundle pricing to encourage consumers to purchase extra items

Accepted Answer

Option A suggests adding value to the framed picture without incurring significant fixed or variable costs, which may raise the perceived value of the product and justify the increase in price. By doing this, the shop owner can maintain the quality of the product without having to resort to cost-cutting measures such as using cheaper quality materials (Option B) that could potentially hurt customer satisfaction in the long term. Mislabeling the price of goods in her income statement (Option C) is unethical and could lead to legal issues. Bundle pricing (Option D) may or may not work, depending on the demand for the other items in the bundle, and may also require additional costs for packaging and marketing. Overall, Option A seems to be the best choice as it allows the shop owner to maintain quality without taking significant risks or engaging in unethical behavior.

Question 19

Which of the following would be an example of a variable cost for a publication like SHAPE magazine that is targeted to young women seeking a healthier lifestyle?
A)paper and ink
B)increase in women in targeted demographics
C)rent for parking deck used by employees
D)salary of publisher

Accepted Answer

Paper and ink are variable costs because they vary based on the number of copies printed. The increase in women in targeted demographics and rent for parking deck used by employees are fixed costs. Salary of publisher is not directly related to the production of each individual copy of the publication, so it is not a variable cost.

Question 20

The competitive market situation in which the few sellers are sensitive to one another's prices is called:
A)monopolistic competition.
B)pure monopoly.
C)pure competition.
D)oligopoly.

Accepted Answer

An oligopoly is a market situation where a few large sellers dominate the market and are sensitive to each other's pricing decisions. This leads to interdependence among the sellers and they need to consider their competitors' actions while making decisions. Hence, option D is the correct answer. Option A is incorrect as monopolistic competition is a market situation where there are many small firms selling differentiated products, and they do not have significant pricing power. Option B is incorrect as pure monopoly is a situation where one firm dominates the market and has complete pricing power. Option C is incorrect as pure competition is a market situation where there are many small firms selling identical products, and they do not have significant pricing power.

Quiz 13: Pricing Products and Services

Predatory pricing is:

The total money received from the sale of a product is called:

When Sherman bought gas, he noticed the convenience store offered him a 3 percent reduction in price if he paid cash rather than used his credit card. The convenience store was offering him a:

Most consumers realize the quality of diamonds varies, and most believe the higher the price of the diamond, the higher its quality. This is an example of price influencing the perception of overall quality, and_________ to consumers.

You are president of a manufacturing unit of small electronic appliances. You want to reduce your break-even quantity. Other things equal, you can do this by:

A car manufacturer launches a 2014 version of their newest vehicle and has internally stated that each car will have a profit margin of 25%. Manufacturing and marketing need to know this number so they can plan accordingly. The stated profit margin of 25% is an example of a(n) :

The pricing model in the text has six distinct steps in the pricing process. In which step would you be reviewing the following approaches: demand-oriented, cost-oriented, profit-oriented, and competition-oriented?

Everyday low pricing (EDLP) is the practice of replacing_________with lower manufacturer list prices.

At a local coffee shop, where you frequent, you are enrolled in their frequent-buyer program, where, for every ten coffees you purchase, you get one for free. Essentially, the coffee shop is engaged in offering a(n) :

If you buy one pair of Uvex Clear UVExtreme safety eyewear, the cost is $7.40, but if you buy ten at one time, the price per pair is reduced to $6.85. This is an example of a:

When Panera Bread opened Panera Cares Cafe, they implemented a pricing model that allowed consumers to pay what they wished for their items. This pricing model is referred to as:

Trade (functional) discounts are calculated on two criteria. What are the two criteria?

A new special on this week at your local dress shop is a 2 for 1 dress special with free tailoring. Last week, it was regular pricing on everything and tailoring was being charged $25.00 a dress. The marketers at this dress shop are engaging in:

Suppose a shop owner sets a target ROI of 10 percent, which is twice that achieved the previous year. She considers raising the average price of a framed picture to $54 or $58-up from last year's average of $50. In order to still achieve her target, she might:

Which of the following would be an example of a variable cost for a publication like SHAPE magazine that is targeted to young women seeking a healthier lifestyle?

The competitive market situation in which the few sellers are sensitive to one another's prices is called: