Question 1

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

The behavior of both limousine services, where one adjusts its price in response to the other, is an example of maintaining the status quo in terms of pricing - neither company is trying to gain a competitive advantage by undercutting the other. Therefore, the statement is true.

Question 2

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

The statement is true. Proctor & Gamble entered the electric toothbrush market with the Crest SpinBrush at a lower price point compared to the lesser-known competitors. They used penetration strategy to gain market share.

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

Manufacturers know the approximate price level they can expect when establishing a product price.This approximate price is called the base price.

Accepted Answer

Manufacturers estimate a base price based on factors such as production costs, competition, and target market.

Question 5

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 6

Price discrimination can sometimes be justified.

Accepted Answer

Price discrimination can be justified when it allows businesses to offer lower prices to customers who would not otherwise be able to afford the product or service. It can also incentivize certain behaviors, such as buying in bulk or during off-peak times. However, price discrimination can be viewed as unfair or discriminatory if it is based on factors such as race or gender.

Question 7

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

Accepted Answer

This is true because each pricing objective may prioritize one aspect over another, such as profit maximization versus market share growth, and managers must determine which is most important for their specific business goals.

Question 8

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 9

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 10

Functional discounts are typically calculated as the wholesale price times the accumulated margin percentages.

Accepted Answer

Functional discounts are typically a percentage discount from the base price.

Question 11

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 derive pricing goals from the firm's overall objectives.

Question 12

Markdown allowances are illegal.

Accepted Answer

Markdown allowances are legal,but critics claim they create an uneven playing field for vendors.

Question 13

Sears and John Deere run major sales on their lines of riding lawn mowers every fall.This is an example of a seasonal discount.

Accepted Answer

The fact that Sears and John Deere run major sales on their lines of riding lawn mowers every fall indicates that the discount is being offered during a specific season, making it a seasonal discount.

Question 14

A retailer of furniture for babies that is allowed to deduct 3 percent from its total bill if it pays by a specific date is receiving a promotional discount.

Accepted Answer

This is describing a cash discount.

Question 15

The basic assumption with price skimming is that the firm is customer driven,seeking to understand the attributes customers want in goods and services they buy and the value of that bundle of attributes to customers.

Accepted Answer

This is the basic assumption for value pricing.

Question 16

A winery that makes a huge profit on merlot wines may lower its price on pinot noir wines to cause damage to wineries that only produce pinot noir.This is an example of predatory pricing.

Accepted Answer

Predatory pricing is the act of setting prices very low in an attempt to eliminate competition. In this case, the winery is deliberately lowering the price of pinot noir to damage wineries that only produce pinot noir, which is an example of predatory pricing.

Question 17

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 18

Functional discounts,noncumulative quantity discounts,and promotional allowances are examples of rebates given to the trade customer.

Accepted Answer

Rebates involve a cash refund for the purchase of a product during a specific period.

Question 19

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 20

Evergreen Lighting,a manufacturer of decorative,energy-efficient lighting products,requires its buyers to pay for the cost of transportation from the manufacturing site to their place of businesses.Evergreen Lighting uses FOB origin pricing.

Accepted Answer

FOB origin pricing means that the buyer is responsible for the cost of transportation from the manufacturing site. Therefore, Evergreen Lighting requiring its buyers to pay for transportation indicates that they are using FOB origin pricing.

Quiz 20: Setting the Right Price