Question 1

Price elasticity of demand is determined by a number of factors such as whether the item is a luxury product or service,the availability of substitutes,the necessity of the product or service,and
A) the stage of the product or service in its product life cycle.
B) the degree of carrying costs for the manufacturer or distributor.
C) the financial resources of the organization itself.
D) the cash outlay of purchase relative to a person's disposable income.
E) the ability of the organization to meet sudden increases in demand.

Accepted Answer

The answer of Price elasticity of demand is determined by...

Question 2

Shoe Co.has fixed costs of $6 million and unit variable costs of $5 per pair.Suppose a consultant tells Ace it can sell 700,000 pairs of shoes,thus earning a profit of $2.5 million.What potential error is the consultant making?
A) assuming that fixed costs are independent of price
B) assuming that units sold is independent of price
C) assuming that some fixed costs are variable
D) assuming that some variable costs are fixed
E) assuming that variable costs are independent of price

Accepted Answer

The consultant is likely assuming that the number of units sold (700,000 pairs) is independent of the price, which may not be true as demand can be affected by price changes.

Question 3

Price elasticity of demand is determined by a number of factors,such as the availability of substitutes,the necessity of the product or service,the cash outlay of purchase relative to a person's disposable income,and
A) whether the item is a luxury product or service.
B) the stage of the product or service in its product life cycle.
C) the degree of carrying costs for the manufacturer or distributor.
D) the financial resources of the organization itself.
E) the ability of the organization to meet sudden increases in demand.

Accepted Answer

The availability of substitutes and whether the item is a luxury product or service are two of the main factors that determine price elasticity of demand. Luxury products or services are usually more price-sensitive, while products or services that have few or no substitutes are usually less price-sensitive.

Question 4

Recently,much of the western U.S.experienced a drought condition and water usage was restricted in Denver.Yet even though most people used less water,the price of water did not drop.When the drought was declared over,the water company raised water prices.However,the residents of Denver did not use less water.Here,water is
A) price elastic.
B) price sensitive.
C) price inelastic.
D) price insensitive.
E) unitary elastic.

Accepted Answer

The fact that the price of water did not drop when usage was restricted implies that water usage is not very responsive to changes in price, making it price inelastic. Similarly, when the price of water was raised after the drought was declared over, residents still did not significantly reduce their water usage, further indicating that water is price inelastic in this situation.

Question 5

Price elasticity of demand is determined by a number of factors,such as whether the item is a luxury product or service,the necessity of the product or service,the cash outlay of purchase relative to a person's disposable income,and
A) the stage of the product or service in its product life cycle.
B) the degree of carrying costs for the manufacturer or distributor.
C) the availability of substitutes.
D) the financial resources of the organization itself.
E) the ability of the organization to meet sudden increases in demand.

Accepted Answer

The availability of substitutes plays a significant role in determining the price elasticity of demand. If there are many substitutes available, consumers may be less likely to purchase a product if its price increases, making it more elastic. Conversely, if there are few or no substitutes, consumers may be more willing to pay a higher price, making it less elastic.

Question 6

Price elasticity of demand is determined by a number of factors such as whether the item is a luxury product or service,the availability of substitutes,the cash outlay of purchase relative to a person's disposable income,and
A) the stage of the product or service in its product life cycle.
B) the degree of carrying costs for the manufacturer or distributor.
C) the financial resources of the organization itself.
D) the ability of the organization to meet sudden increases in demand.
E) the necessity of the product or service.

Accepted Answer

The necessity of the product or service affects price elasticity because essential goods tend to have inelastic demand, meaning consumers will buy them regardless of price changes.

Question 7

Fixed cost refers to
A) the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold
B) the total expense incurred by a firm in producing and marketing a product, which equals the sum of overhead cost and variable cost.
C) the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.
D) the average amount of money received for selling one unit of a product or simply the price of that unit.
E) the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.

Accepted Answer

Fixed cost refers to the sum of expenses that do not vary with the quantity of a product that is produced and sold. These expenses remain constant regardless of the level of production or sales. Examples of fixed costs include rent, salaries, insurance, and property taxes.

Question 8

Total cost refers to
A) the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.
B) the change in expenses that results from producing and marketing one additional unit of a product.
C) the average amount of money received for selling one unit of a product or simply the price of that unit.
D) the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.
E) the total expense incurred by a firm in producing and marketing a product, which equals the sum of fixed cost and variable cost.

Accepted Answer

Total cost refers to the total expense incurred by a firm in producing and marketing a product, which equals the sum of fixed cost and variable cost. This includes all expenses, both stable and variable, that are directly related to producing and marketing a product. Therefore, the correct option is E as it includes all the expenses incurred by the firm related to a product.

Question 9

Which of the following statements about unitary demand is most accurate?
A) Products for which there are a lot of substitutes traditionally have unitary demand.
B) Products such as life-saving drugs tend to have unitary demand.
C) Products with unitary demand will have price elasticity equal to 1.
D) Products with unitary demand have a price elasticity that is greater than one.
E) High-end consumer products like jets, yachts, and summer homes usually have unitary demand.

Accepted Answer

Unitary demand refers to a situation where the price elasticity of demand is exactly equal to 1, meaning that the percentage change in quantity demanded is exactly equal to the percentage change in price.

Question 10

Which of the following is a typical example of a fixed cost?
A) taxes
B) raw materials
C) sales commissions
D) building rental expense
E) hourly wages

Accepted Answer

Fixed costs are expenses that do not change with fluctuations in production or sales levels. Building rental expense is a typical example of a fixed cost as the rent amount remains constant regardless of the company's production or sales. Taxes, raw materials, sales commissions, and hourly wages are examples of variable costs as they change proportionally with the company's production or sales levels.

Question 11

Which of the following would be an example of a fixed cost for a company that makes carbon monoxide monitoring systems for employees to wear that work in hazardous areas?
A) the lithium batteries that are used in each monitor
B) the chest harness the employee must use to wear the monitor
C) the rent for the company's offices
D) the free training videos that are sent to each new customer
E) the stainless steel, water-resistant cases in which the monitors sit

Accepted Answer

Rent for the company's offices is a fixed cost because it remains the same regardless of how many monitors are produced. The other choices are either variable costs (A, E) or not directly related to the production of the monitors (B, D).

Question 12

a price of $2.00 each,SHAPE magazine sells 1 million copies of its magazine targeted to young women seeking a healthier lifestyle.If the price per issue is increased to $2.50,only 800,000 copies would be sold.From the information provided here,the price elasticity of demand for SHAPE magazine in this price range can be described as
A) inelastic demand.
B) elastic demand.
C) unitary demand.
D) null elasticity.
E) subsidized elasticity.

Accepted Answer

The price elasticity of demand measures the percentage change in the quantity demanded in response to a percentage change in the price of a product. If the percentage change in the quantity demanded is greater than the percentage change in price, then the demand is considered elastic. In this case, we see that when the price of the magazine increases from $2.00 to $2.50, the quantity demanded falls from 1 million to 800,000, which is a percentage change in demand of (-200,000/1,000,000) = -20%. On the other hand, the percentage change in price is (2.50-2.00)/2.00 = 0.25 or 25%. Since the percentage change in quantity demanded is greater than the percentage change in price, the demand for SHAPE magazine in this price range can be described as elastic.

Question 13

Products such as disposable diapers usually have
A) elastic demand.
B) null elasticity.
C) unitary demand.
D) inelastic supply.
E) inelastic demand.

Accepted Answer

Disposable diapers are a necessity for parents with infants, which means that demand for this product is relatively unresponsive to changes in price. Therefore, the demand for disposable diapers is inelastic.

Question 14

total expense incurred by a firm in producing and marketing a product,which equals the sum of fixed cost and variable cost,is referred to as
A) overhead cost.
B) total cost.
C) unit cost.
D) average cost.
E) marginal cost.

Accepted Answer

Total cost is the sum of fixed cost and variable cost and represents the total expense incurred by a firm in producing and marketing a product. Overhead cost represents a specific subset of costs within total cost, while unit cost, average cost, and marginal cost are all calculated based on total cost.

Question 15

sum of the expenses of a firm that is stable and does not change with the quantity of the product that is produced and sold is referred to as
A) fixed cost.
B) total cost.
C) variable cost.
D) marginal cost.
E) overhead cost.

Accepted Answer

Fixed costs are expenses that do not change with the quantity of the product that is produced and sold. These costs are incurred regardless of the level of production and include expenses such as rent, salaries, and insurance.

Question 16

cost concepts are important in pricing decisions: total cost,fixed cost,variable cost,marginal cost,and __________.
A) dividend cost
B) liquidity cost
C) discretionary cost
D) unit variable cost
E) elastic cost

Accepted Answer

Unit variable cost is an important cost concept in pricing decisions as it refers to the cost of producing one additional unit of a product or service. By understanding the unit variable cost, a company can determine how much it needs to charge for each unit sold in order to cover its costs and make a profit.

Question 17

Market analysts for a large cereal company estimated that the price elasticity of demand for presweetened cereal is 1.97,but that the entire market for ready-to-eat cereals exhibits a price elasticity of demand of 0.36.Marketers collect this type of information in which step of the price-setting process?
A) identifying pricing objectives and constraints
B) estimating demand and revenue
C) estimating the break-even point
D) selecting an approximate price level
E) making special adjustments to list or quoted price

Accepted Answer

The given information about the price elasticity of demand for presweetened cereal and the entire market for ready-to-eat cereals is used in estimating demand and revenue, which is a step in the price-setting process. The other options are not relevant to the given scenario.

Question 18

book on how to invest in collectibles spends several weeks on The New York Times bestseller list.The paperback book was originally released for $9.99.A reduction of the price to $9.79 had no effect on total revenue,which remained the same.This is due to the book having
A) inelastic demand.
B) elastic demand.
C) null elasticity.
D) unitary demand.
E) subsidized elasticity.

Accepted Answer

Unitary demand means that a change in price does not affect total revenue, as the percentage change in quantity demanded is exactly equal to the percentage change in price.

Question 19

manufacturer of a new kind of fat-free ice cream that has the consistency and taste of regular ice cream is thinking of using a penetration pricing strategy for its new product.Which of the following conditions would argue against using a penetration pricing strategy for the tasty fat-free ice cream?
A) The ice cream market is highly elastic.
B) A large portion of the market has inelastic demand for ice cream-over a fairly broad range of prices.
C) Economies of scale in production would be substantial.
D) Retailers are not willing to pay for new brands of premium ice cream in the already overcrowded category.
E) Once the initial price is set, it is nearly impossible to lower the price without alienating early buyers.

Accepted Answer

If a large portion of the market has inelastic demand for ice cream, it means that consumers are relatively insensitive to changes in price, and therefore a penetration pricing strategy may not be necessary. Inelastic demand suggests that consumers will likely continue to purchase the fat-free ice cream even if it is priced higher than regular ice cream, which would maximize the manufacturer's profits. The other options are not strong arguments against using a penetration pricing strategy.

Question 20

Rents,executive salaries,and insurance are typical examples of
A) variable costs.
B) fixed costs.
C) unit costs.
D) marginal costs.
E) total costs.

Accepted Answer

Fixed costs are costs that do not change with changes in the level of production or sales. Examples of fixed costs include executive salaries, rent, and insurance. In contrast, variable costs are costs that do change with changes in the level of production or sales. Unit costs, marginal costs, and total costs are different types of cost calculations.

Quiz 13: Building the Price Foundation

Price elasticity of demand is determined by a number of factors such as whether the item is a luxury product or service,the availability of substitutes,the necessity of the product or service,and

Shoe Co.has fixed costs of $6 million and unit variable costs of $5 per pair.Suppose a consultant tells Ace it can sell 700,000 pairs of shoes,thus earning a profit of $2.5 million.What potential error is the consultant making?

Price elasticity of demand is determined by a number of factors,such as the availability of substitutes,the necessity of the product or service,the cash outlay of purchase relative to a person's disposable income,and

Price elasticity of demand is determined by a number of factors,such as whether the item is a luxury product or service,the necessity of the product or service,the cash outlay of purchase relative to a person's disposable income,and

Price elasticity of demand is determined by a number of factors such as whether the item is a luxury product or service,the availability of substitutes,the cash outlay of purchase relative to a person's disposable income,and

Fixed cost refers to

Total cost refers to

Which of the following statements about unitary demand is most accurate?

Which of the following is a typical example of a fixed cost?

Which of the following would be an example of a fixed cost for a company that makes carbon monoxide monitoring systems for employees to wear that work in hazardous areas?

Products such as disposable diapers usually have

total expense incurred by a firm in producing and marketing a product,which equals the sum of fixed cost and variable cost,is referred to as

sum of the expenses of a firm that is stable and does not change with the quantity of the product that is produced and sold is referred to as

cost concepts are important in pricing decisions: total cost,fixed cost,variable cost,marginal cost,and __________.

book on how to invest in collectibles spends several weeks on The New York Times bestseller list.The paperback book was originally released for $9.99.A reduction of the price to $9.79 had no effect on total revenue,which remained the same.This is due to the book having

Rents,executive salaries,and insurance are typical examples of