Question 1

A profit maximization strategy is used during the growth and maturity stages of the product life cycle.

Accepted Answer

False

Question 2

Cost-plus pricing is not a very effective strategy for maximizing profits.

Accepted Answer

Cost-plus pricing focuses on covering costs and adding a markup for profit, but it doesn't consider market demand, competition, or value perception, which are crucial for maximizing profits.

Question 3

Prices are generally more elastic in the early stages of the product life cycle and increasingly inelastic in the later stages of the product life cycle.

Accepted Answer

In the early stages, consumers are more responsive to price changes as they are still exploring the product, while in the later stages, the product is more established, and demand becomes less sensitive to price changes.

Question 4

Unbundling provides value for customers who are focused on a specific price point rather than the complete product offering.

Accepted Answer

Unbundling allows customers to purchase only the components or services they need, which can be more cost-effective for those who are focused on staying within a specific budget or who do not require the full product offering.

Question 5

Break-even analysis is an accurate measure of price sensitivity.

Accepted Answer

Break-even analysis primarily focuses on the point at which costs and revenues are equal, not directly on how changes in price affect demand or sensitivity.

Question 6

Customers are more price sensitive the higher the product's price is relative to the customers' price expectation.

Accepted Answer

Customers tend to be more price sensitive when the product's price significantly exceeds their expectations or perceived value, as they are more likely to compare prices and seek alternatives.

Question 7

Underpricing is a pricing strategy whereby companies charge an amount just below cost in order to generate sales in the introductory stage of a product's life cycle.

Accepted Answer

Underpricing refers to setting a product's price lower than the market rate or competitors' prices to attract customers or gain market share, not necessarily below cost. Charging below cost is more accurately described as a loss leader strategy, not a typical approach for the introductory stage of a product's life cycle.

Question 8

Price elasticity of demand is a measure of price sensitivity.

Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, indicating the sensitivity of consumers to price changes.

Question 9

Once a firm has established its break-even point for a product, it has a starting point for estimating how much revenue it must generate to earn a profit.

Accepted Answer

The break-even point is the level of production and sales at which total revenues equal total expenses. Once a firm knows its break-even point, it can determine how much more revenue it needs to generate beyond this point to start making a profit.

Question 10

Rent on an office building would be considered a fixed cost, while sales commissions would be considered a variable cost.

Accepted Answer

Rent on an office building is a fixed cost because it does not change with the level of goods or services produced by the business. Sales commissions, however, are a variable cost because they vary with the amount of product sold.

Question 11

While shopping, Lucie sees a pair of jeans on sale for $29.99. She is excited because she has purchased this particular brand of jeans several times in the past for $40.00. In this instance, $40.00 is Lucie's fixed cost.

Accepted Answer

The $40.00 is not a fixed cost; it is the previous price she has paid for the jeans. Fixed costs refer to expenses that do not change with the level of production or sales, such as rent or salaries, and are not applicable in the context of a consumer purchasing a product.

Question 12

Dynamic pricing is a pricing strategy that involves pricing a product higher than competitors to signal that it is of higher quality.

Accepted Answer

Dynamic pricing is a strategy that involves adjusting prices on the fly in response to market demands, not necessarily pricing a product higher to signal higher quality.

Question 13

Shrinkflation is when manufacturers "shrink" or reduce the price of their products during times of inflation.

Accepted Answer

Shrinkflation is when manufacturers reduce the size or quantity of their products while keeping prices the same, not when they reduce the price of their products.

Question 14

Volume maximization is the same thing as penetration pricing.

Accepted Answer

Volume maximization and penetration pricing are both pricing strategies that aim to increase sales volume. Volume maximization focuses on selling a large number of units at a low price, while penetration pricing involves setting a low price to attract new customers and gain market share.

Question 15

An escalator clause ensures that the customer does not incur financial hardship as a result of increases to the cost of a product.

Accepted Answer

An escalator clause is typically used in contracts to adjust prices based on changes in certain costs or economic indicators, such as inflation, not specifically to prevent financial hardship for the customer.

Question 16

Loss-leader pricing involves selling a product at a price that causes the firm a financial loss.

Accepted Answer

Loss-leader pricing strategy involves selling a product at a price that is not profitable or even at a loss to attract customers, with the expectation that they will also purchase other, more profitable items.

Question 17

A recreational watersports dealer reduced the price of its new jet skis by $1,000 in hopes of generating more sales. However, the lower price only resulted in a few more sales of the jet skis. This represents an elastic demand situation.

Accepted Answer

This situation represents inelastic demand because a significant price reduction resulted in only a small increase in quantity demanded, indicating that consumers' demand for jet skis is not highly sensitive to price changes.

Question 18

An odd pricing tactic prices items in odd dollar amounts, such as $4.95, instead of in even amounts, like $4.88.

Accepted Answer

An odd pricing tactic actually refers to pricing items just below a round number, such as $4.99 instead of $5.00, to make the price seem lower than it actually is. Pricing at $4.88 would also be considered an odd pricing strategy, not an even amount strategy.

Question 19

The change in total revenue that results from selling one additional product unit is referred to as price sensitivity.

Accepted Answer

The change in total revenue that results from selling one additional product unit is referred to as marginal revenue, not price sensitivity. Price sensitivity, also known as price elasticity of demand, measures how the quantity demanded of a good changes in response to a change in its price.

Question 20

Promotion is one of the most important strategic decisions a firm faces because it reflects the value the product delivers to consumers as well as the value it captures for the firm.

Accepted Answer

Promotion is a crucial aspect of a firm's marketing strategy, focusing on communicating the product's value to consumers, but it is not directly about reflecting the value the product delivers to consumers or captures for the firm. Those aspects are more closely related to product development, pricing, and overall value proposition.

Quiz 11: Pricing