Question 1

The manufacturers that remain in the market toward the end of the maturity stage typically offer similar prices.

Accepted Answer

As competition increases and the market becomes more saturated, manufacturers may begin to offer similar prices in order to remain competitive.

Question 2

Research has shown that products that are perceived to be of high quality tend to benefit less from price promotions than products perceived to be of lower quality.

Accepted Answer

They tend to benefit more from price promotions that products perceived to be of lower quality.

Question 3

Once he compiles information on pricing objectives,market demand,quantity supplied,and the price elasticity of demand,the owner/operator of a home cleaning service will be ready to determine the optimal price for a new service offering.

Accepted Answer

He must also collect information or estimates about costs and total revenue at a variety of prices.Only then can he make reasonable estimates about profits and market share.

Question 4

Price fixing is only illegal in some instances.

Accepted Answer

Price fixing is illegal under the Sherman Act and the Federal Trade Commission Act.Price fixing is one area where the law is quite clear,and the Justice Department's enforcement is vigorous.

Question 5

Prices may actually rise for a product in the decline stage of the product life cycle.

Accepted Answer

When only one firm is left in the market,prices begin to stabilize,but they may eventually rise dramatically if the product survives and moves into the specialty goods category,as horse-drawn carriages and vinyl records have.

Question 6

One disadvantage of using a penetration pricing policy is that the high unit profit margins will attract potential competitors into production of similar products.

Accepted Answer

Penetration pricing has low profit margins on each unit sold.This is seen as an advantage because it discourages potential customers from entering the market.

Question 7

As products enter the growth stage of the product life cycle,prices generally begin to stabilize.

Accepted Answer

Generally, as products enter the growth stage, there is increased demand and competition, which can lead to stable prices. However, in some cases, companies may choose to lower prices to gain market share or increase profits through economies of scale. Overall, the trend is towards price stability in the growth stage.

Question 8

Break-even analysis determines what sales volume must be reached for a product before the company's total revenue equals total costs.

Accepted Answer

Break-even analysis is a tool used to calculate the sales volume at which a company's total revenue equals total costs, meaning the company has not made a profit nor incurred a loss.

Question 9

Penetration pricing is sometimes referred to as a "market-plus" approach to pricing.

Accepted Answer

Price skimming is sometimes referred to as a "market-plus" approach to pricing.

Question 10

The manufacturer of Trek Natural sports drink would like to introduce a Trek Natural brand energy drink in the already crowded energy drink category.This company would have a great amount of freedom in choosing a price for its new energy drink.

Accepted Answer

If a firm brings out a new item similar to a number of others already on the market,its pricing freedom will be restricted.

Question 11

It makes the most sense to use price skimming as a pricing policy when supply is greater than demand.

Accepted Answer

It makes the most sense to use price skimming as a pricing policy when demand is greater than supply.

Question 12

High purchase prices may create feelings of pleasure and excitement in consumers.

Accepted Answer

This is because paying a high price for a product or service can give consumers a sense of exclusivity or prestige, which can elicit positive emotions. Additionally, some consumers may perceive a higher price as an indication of higher quality or superior performance, which can also be a source of pleasure and excitement.

Question 13

There are two limousine services that drive customers from communities in North Georgia to the Atlanta airport.Whenever one reduces its fare,its competitor reduces its fares by the same amount.This is an example of status quo pricing.

Accepted Answer

This statement describes the concept of price leadership, where one company sets a price and the other company follows suit with a similar price. This is an example of status quo pricing, where the companies maintain the same price levels as each other.

Question 14

All pricing objectives have trade-offs that managers must weigh.

Accepted Answer

This is true because different pricing objectives may lead to different outcomes, such as increased profits versus increased market share, and managers must consider the potential benefits and drawbacks of each objective before making a decision.

Question 15

When a retailer offers a price-matching guarantee,it is signaling to the target market that it is positioned as a low-price dealer.

Accepted Answer

By offering a price-matching guarantee, a retailer is telling its target market that it is willing to match or beat the prices of its competitors, which signals that it is positioned as a low-price dealer.

Question 16

A firm has maximized its profits when its marginal revenue exceeds its marginal cost.

Accepted Answer

A firm has maximized its profits when its marginal revenue equals its marginal cost.

Question 17

Adequate distribution for a new product is often obtained by reducing the size of the profit margin for its resellers.

Accepted Answer

Adequate distribution for a new product is often obtained by offering a larger-than-usual profit margin to its distributors.

Question 18

Price should not be used as a promotional tool.

Accepted Answer

Price is often used as a promotional tool to increase consumer interest.

Question 19

The first step in setting the right price for a new product is to estimate demand,costs,and profits.

Accepted Answer

The first step in setting the right price for a new product is to establish pricing goals from the firm's overall objectives.

Question 20

Proctor & Gamble entered the electric toothbrush market with the Crest SpinBrush at a price considerably lower than lesser-known competitors.It used penetration to gain market share.

Accepted Answer

This statement is true, as Proctor & Gamble did enter the electric toothbrush market with the Crest SpinBrush at a lower price point than some of its competitors. They used this pricing strategy as a way to gain market share through penetration.

Quiz 16: Pricing Concepts