Question 1

Price wars tend to be disadvantageous to retailers. Why, therefore, would a retailer want to lower prices and take the chance of inciting a price war?

Accepted Answer

A retailer may want to lower prices to increase its market share, which can bring in more customers and potentially increase long-term profits. By taking the risk of inciting a price war, the retailer may be able to gain a competitive advantage and establish itself as a preferred choice for customers. This can lead to increased loyalty and repeat business, ultimately resulting in higher profits in the long run.

Question 2

Monopolies are the most likely type of firm to engage in price wars.

Accepted Answer

Monopolies have the power to set prices without competition, so they have little incentive to engage in price wars. They may, however, use predatory pricing to drive out smaller competitors or maintain their dominant position in the market.

Question 3

The Sherman Antitrust Act prohibits price fixing. Price fixing is

Accepted Answer

The Sherman Antitrust Act prohibits price fixing, which is an agreement among competing firms to raise, lower, or maintain prices for mutual benefit. This type of agreement is considered anti-competitive and harms consumers by eliminating competition and artificially inflating prices.

Question 4

To avoid the appearance of price fixing, marketers must develop independent pricing policies and set prices in ways that do not even hint at collusion.

Accepted Answer

Price fixing is illegal and anticompetitive behavior where companies collude to set prices at a certain level. It is important for companies to have independent pricing policies and set prices in ways that do not appear to be coordinated with competitors. This is to avoid any suspicion of collusion or price fixing, which can lead to legal consequences and damage to the company's reputation. Therefore, companies must avoid any actions or communication that suggests coordination with competitors on pricing decisions.

Question 5

Suppose a competitor says that Walmart's everyday low prices are really a type of predatory pricing. Walmart contends that its efficient operations and strong relationships with suppliers, as well as a number of other factors, allow it to keep prices lower than competitors all of the time. A judge determines that Walmart is not guilty of predatory pricing. If Walmart's competitor wanted to prove it was guilty of predatory pricing, what would it have to do?

Accepted Answer

In order to prove that Walmart's pricing strategy was predatory, the competitor would have to demonstrate that the prices were set low in order to drive out competitors. This means that Walmart intentionally lowered their prices in a way that harmed competition in the market, rather than simply providing lower prices due to their efficiencies and supplier relationships. The other choices (A, B, D, E) do not necessarily relate directly to predatory pricing.

Question 6

Predatory pricing is difficult to prove.

Accepted Answer

Predatory pricing is difficult to prove as it requires establishing the intent of the company to drive competitors out of business rather than simply trying to offer the lowest prices to gain market share. Additionally, it can be difficult to determine a reasonable measure of cost in order to determine if prices are being set below that level for the purpose of driving competitors out of business.

Question 7

While giving trade discounts is a relatively standard practice, discounts tend to vary between industries.

Accepted Answer

While trade discounts are common, the percentage of discounts offered may vary depending on the industry, product, or customer. For example, a retailer may offer a higher trade discount on fashion merchandise, while a manufacturer may offer a lower trade discount on industrial goods.

Question 8

An attorney general in Missouri filed a lawsuit against a well-known pharmacy. According to the attorney general, the pharmacy had prices listed on store shelves that were different than the prices charged at the register, resulting in consumers having to pay more. This would most likely be an example of

Accepted Answer

The situation described is most likely an example of deceptive pricing, as the pharmacy is misleading consumers with incorrect prices displayed on store shelves. Price fixing involves collusion between competitors to set prices, price discrimination involves charging different prices to different groups of customers, predatory pricing involves pricing products below cost to drive competitors out of business, and price wars involve intense and aggressive price competition between multiple competitors. None of these scenarios seem to fit the situation described.

Question 9

Myra's company just purchased $600 worth of supplies from Office Depot. The terms for payment are 2/10 net 30. If Myra's firm pays in the next week, it will pay ___________. If Myra's company waits three weeks to pay Office Depot, it will pay _____________.

Accepted Answer

If Myra's firm pays within 10 days, they get a 2% discount on $600, which is $12 off, so they pay $588. If they wait three weeks (beyond the 10 days but within 30), there's no discount, so they pay the full $600.

Question 10

Francine owns her own widget store. She currently does not have enough money to hire anyone else, so she is the only employee. Francine purchased 1,500 widgets for her inventory at $1.50 per widget. In one month, she sold all her widgets for $3.00 each. That month her rent was $700 and utilities were $200. With just this information, Francine's total profit would be $________.

Accepted Answer

To calculate the total profit, we need to first calculate the revenue and the expenses:

Revenue = Number of widgets sold × selling price per widget
Revenue = 1,500 widgets × $3.00 per widget
Revenue = $4,500

Expenses = Rent + Utilities + Cost of goods sold
Expenses = $700 + $200 + (1,500 widgets × $1.50 per widget)
Expenses = $700 + $200 + $2,250
Expenses = $3,150

Profit = Revenue - Expenses
Profit = $4,500 - $3,150
Profit = $1,350

Therefore, Francine's total profit would be $1,350 (Choice C).

Question 11

Shania Dolls have become a major competitor of doll companies like Mattel. When the company produces 1,500 dolls, it incurs $6,000 in costs. When it produces 1,501 dolls, the costs go up to $6,004. This $4 difference is an example of

Accepted Answer

The $4 difference in cost between producing 1,500 and 1,501 dolls represents the marginal cost, which is the cost of producing one additional unit.

Question 12

If Stephen and Andres each own their own gas station, and they get together to set agreed-upon prices, this is an example of deceptive pricing.

Accepted Answer

This is an example of price fixing, not deceptive pricing, as they are agreeing on prices rather than deceiving customers.

Quiz 19: Pricing Concepts