Question 1

Competitive pricing focuses on _____.
A) the marketing mix
B) skimming pricing
C) variable pricing
D) penetration pricing

Accepted Answer

The answer of Competitive pricing focuses on _____.
A) the marketing...

Question 2

Hammich, a burger restaurant, recently announced plans to drop the price of its double cheese burger from $1.99 to just 99 cents in order to match its competitor's pricing. This is an example of a _____.
A) volume strategy
B) prestige objective
C) profitability strategy
D) price war

Accepted Answer

Hammich's decision to drop the price of their double cheese burger to match their competitor's pricing is a clear indication of a price war. A price war is a situation where two or more companies constantly lower prices in order to undercut each other and gain market share. This can lead to a decrease in profit margins and can be detrimental to both companies involved.

Question 3

Score Inc., a home products manufacturer, is introducing a new paper coffee filter at a dramatically reduced cost. Score is entering a market already saturated with stiff competition. Which pricing strategy will enable Score to achieve market recognition?
A) Skimming pricing
B) Penetration pricing
C) Psychological pricing
D) Cost-based pricing

Accepted Answer

With a saturated market and stiff competition, Score Inc. needs to attract customers quickly and gain market share. Penetration pricing is a strategy that involves setting a low price to attract customers and gain market share. By introducing a new paper coffee filter at a dramatically reduced cost, Score can quickly gain a customer base and achieve market recognition. Once the brand becomes established, the company can gradually increase prices.

Question 4

Hoplan, a motel chain, utilizes a pricing strategy of maintaining continuous low prices rather than relying on sales. This strategy is an example of _____ pricing.
A) skimming
B) psychological
C) everyday low
D) penetration

Accepted Answer

The pricing strategy used by Hoplan is everyday low pricing, which involves setting low prices consistently rather than relying on discounts or sales. This strategy is often used by retailers who want to build customer loyalty and be perceived as offering good value. Skimming pricing involves setting high prices for a new or unique product, psychological pricing involves using pricing tactics to influence perception, and penetration pricing involves setting low prices initially to gain market share.

Question 5

Albertsons, a large national supermarket chain, bases pricing decisions on market share and the percentage of a market controlled by a certain product. Albertsons bases its pricing decisions on _____.
A) volume objectives
B) profitability objectives
C) prestige objectives
D) breakeven analysis

Accepted Answer

The answer of Albertsons, a large national supermarket chain, bases...

Question 6

In breakeven analysis, total cost is composed of _____.
A) total sales minus expenses
B) variable costs minus fixed costs
C) price divided by number of units sold
D) total variable costs and total fixed costs

Accepted Answer

Total cost is the sum of total variable costs and total fixed costs. The breakeven point is the point at which total revenue equals total cost, and understanding the components of total cost is essential in calculating it accurately. Variable costs vary with the level of production, while fixed costs are constant regardless of the level of production.

Question 7

The method of determining the minimum sales volume needed at a certain price level to cover all costs is _____.
A) market share analysis
B) equilibrium pricing analysis
C) return on sales analysis
D) breakeven analysis

Accepted Answer

The method described is breakeven analysis, which calculates the point at which total revenue equals total costs. This is an important tool for pricing decisions, as it helps businesses determine whether a particular price point will yield a profit or a loss. Market share analysis and return on sales analysis relate to different aspects of pricing strategy, while equilibrium pricing analysis typically involves broader industry or market trends.

Question 8

Setting a price relatively high compared to similar goods and then gradually lowering it is a pricing strategy called _____ pricing.
A) penetration
B) skimming
C) cost-based
D) psychological

Accepted Answer

Skimming pricing involves setting a high price initially for a new or innovative product and gradually lowering it as competition enters the market. This strategy is effective for businesses that target early adopters and want to maximize profits before competitors enter the market.

Question 9

Oilfield Inc. and Trell Inc., two major oil companies, are located directly across the street from one another. Oilfield lowers its price for regular unleaded oil by 5 cents, and Trell quickly follows suit. What pricing objective is Trell using?
A) Competitive pricing
B) Skimming pricing
C) Odd pricing
D) Penetration pricing

Accepted Answer

Trell is using competitive pricing, which involves setting prices based on the prices of competitors. In this case, Trell lowered their prices in response to Oilfield's price decrease.

Question 10

Business costs that change with the level of production are called _____ costs.
A) inflexible
B) fixed
C) variable
D) production

Accepted Answer

Variable costs are directly related to the level of production, meaning that they fluctuate with changes in production. As production increases, variable costs also increase, and as production decreases, variable costs decrease. This is in contrast to fixed costs, which remain the same regardless of production levels.

Question 11

Jonathan is planning on setting up a small-scale guitar manufacturing company. Jonathan isn't well versed in economics, so he doesn't understand the concept of supply and demand very well. What pricing strategy must Jonathan adopt?
A) Skimming pricing
B) Prestige pricing
C) Psychological pricing
D) Cost-based pricing

Accepted Answer

Since Jonathan is not well versed in economics and does not understand supply and demand well, he should adopt a cost-based pricing strategy. This strategy involves setting the price based on the cost of production, including materials, labor, and overhead expenses. It is a simple and straightforward pricing strategy that could help prevent him from overpricing or underpricing his guitars.

Question 12

Chappers, an audio equipment store, wants to price one of its products, a $200 turntable, in such a way that its customers would perceive the turntable's quality to be very high. Which of the following pricing must it use?
A) $203
B) $202
C) $202.22
D) $202.11

Accepted Answer

The answer of Chappers, an audio equipment store, wants to...

Question 13

Assume a product costs $5. The variable cost per unit is currently $4, and the fixed cost is $25,000. If the company can alter its production method such that the variable costs fall to $3.50 and the fixed costs rise to $30,000, what will happen to the breakeven point?
A) It will rise and fall later.
B) It will rise.
C) It will remain the same.
D) It will fall.

Accepted Answer

The breakeven point is calculated as Fixed Costs / (Selling Price - Variable Costs). Initially, it is $25,000 / ($5 - $4) = 25,000 units. With the new costs, it becomes $30,000 / ($5 - $3.50) = 24,000 units. Thus, the breakeven point falls.

Question 14

A local bakery wanted to attract more customers, so it began offering a dozen bagels for $5 every Wednesday. The bakery is utilizing _____ pricing to increase its volume of sales.
A) skimming
B) odd
C) everyday low
D) discount

Accepted Answer

The bakery is offering a discounted price on Wednesdays to increase sales, which is an example of discount pricing.

Question 15

If you did a breakeven analysis for your firm, it would be possible for you to show to your management the point at which _____.
A) the level of sales that will cover all of the company's costs
B) the firm would not make a profit if it sold additional units
C) profits would be maximized
D) the firm's fixed costs would climb sharply

Accepted Answer

A breakeven analysis helps to determine the point at which the level of sales will cover all of the company's costs, including fixed and variable costs. This is where the company is not making a profit nor incurring a loss. By knowing this point, management can make decisions on pricing, production levels and sales strategies to maximize profits. It does not relate to the firm's profits being maximized or its fixed costs climbing sharply.

Question 16

Which of the following pricing objectives will have the most influence on Phin's, a luxury watchmaker's, pricing strategy?
A) Profitability
B) Prestige
C) Meeting the competition
D) Volume

Accepted Answer

Phin, being a luxury watchmaker, is likely focused on maintaining or increasing its prestige within the market. While profitability and meeting the competition may also be considerations, for luxury brands, maintaining an image of exclusivity and prestige can be the most influential factor in pricing decisions. Volume may be less of a concern for a luxury brand, as demand for high-end products tends to be more limited.

Question 17

Blue, a Jazz club, is conducting a breakeven analysis to determine how many tickets it must sell at $20 each to break even on the Jazz Fest, a program conducted by it. Fixed costs are $4,000, and the variable cost per person is $10. To break even, Blue must sell _____ tickets.
A) 800
B) 500
C) 400
D) 80

Accepted Answer

To break even, the total revenue must equal the total cost. Let X be the number of tickets Blue must sell.
Total cost = Fixed Cost + (Variable Cost per person x Number of people)
Total cost = $4,000 + ($10 x X)
Total revenue = (Ticket price x Number of tickets) = $20X

Equating total cost and total revenue, we get:
$20X = $4,000 + ($10 X) 
$10X = $4,000 
X = 400

Therefore, Blue must sell 400 tickets to break even.

Question 18

Cup-shirt, a T-shirt company, is conducting a breakeven analysis on unbleached cotton tops. Fixed costs are $100,000 and the per-unit contribution to fixed costs is $20. To break even, the company must sell _____ units.
A) 20,000
B) 5,000
C) 500
D) 200

Accepted Answer

To calculate the breakeven point, we use the formula:
Breakeven point = Fixed Costs / Contribution per unit 
Plugging in the values given: 
Breakeven point = $100,000 / $20 
Breakeven point = 5000 units 
Therefore, the company must sell 5000 units to break even.

Question 19

Which of the following statements regarding price and quality is supported by research?
A) The higher the price, the greater the sales volume.
B) Consumers' perception of product quality is related closely to an item's price.
C) Perception of quality has no relationship to price.
D) Quality and price always go hand-in-hand.

Accepted Answer

Research shows that consumers tend to associate higher prices with higher quality. However, this does not mean that the relationship is always linear or that price is the only factor that affects perceived quality. Other factors such as brand reputation, advertising, and personal experience can also influence consumer perceptions of quality.

Question 20

In breakeven analysis, the costs that change with the level of production are considered _____ costs.
A) variable
B) recoverable
C) labor
D) fixed

Accepted Answer

Variable costs are costs that vary with the level of production or sales volume, such as raw materials, direct labor, and commission-based salaries. Fixed costs, on the other hand, remain constant regardless of the production or sales volume, such as rent, property taxes, and management salaries. Labor costs may be variable or fixed depending on the type of labor and employment contract. Recoverable costs are costs that can be recouped through sales, such as marketing expenses or research and development costs, and are not directly related to the level of production.

Quiz 13: Promotion and Pricing Strategies

Competitive pricing focuses on _____.

Hammich, a burger restaurant, recently announced plans to drop the price of its double cheese burger from $1.99 to just 99 cents in order to match its competitor's pricing. This is an example of a _____.

Score Inc., a home products manufacturer, is introducing a new paper coffee filter at a dramatically reduced cost. Score is entering a market already saturated with stiff competition. Which pricing strategy will enable Score to achieve market recognition?

Hoplan, a motel chain, utilizes a pricing strategy of maintaining continuous low prices rather than relying on sales. This strategy is an example of _____ pricing.

Albertsons, a large national supermarket chain, bases pricing decisions on market share and the percentage of a market controlled by a certain product. Albertsons bases its pricing decisions on _____.

In breakeven analysis, total cost is composed of _____.

The method of determining the minimum sales volume needed at a certain price level to cover all costs is _____.

Setting a price relatively high compared to similar goods and then gradually lowering it is a pricing strategy called _____ pricing.

Oilfield Inc. and Trell Inc., two major oil companies, are located directly across the street from one another. Oilfield lowers its price for regular unleaded oil by 5 cents, and Trell quickly follows suit. What pricing objective is Trell using?

Business costs that change with the level of production are called _____ costs.

Jonathan is planning on setting up a small-scale guitar manufacturing company. Jonathan isn't well versed in economics, so he doesn't understand the concept of supply and demand very well. What pricing strategy must Jonathan adopt?

Chappers, an audio equipment store, wants to price one of its products, a $200 turntable, in such a way that its customers would perceive the turntable's quality to be very high. Which of the following pricing must it use?

Assume a product costs $5. The variable cost per unit is currently $4, and the fixed cost is $25,000. If the company can alter its production method such that the variable costs fall to $3.50 and the fixed costs rise to $30,000, what will happen to the breakeven point?

A local bakery wanted to attract more customers, so it began offering a dozen bagels for $5 every Wednesday. The bakery is utilizing _____ pricing to increase its volume of sales.

If you did a breakeven analysis for your firm, it would be possible for you to show to your management the point at which _____.

Which of the following pricing objectives will have the most influence on Phin's, a luxury watchmaker's, pricing strategy?

Blue, a Jazz club, is conducting a breakeven analysis to determine how many tickets it must sell at $20 each to break even on the Jazz Fest, a program conducted by it. Fixed costs are $4,000, and the variable cost per person is $10. To break even, Blue must sell _____ tickets.

Cup-shirt, a T-shirt company, is conducting a breakeven analysis on unbleached cotton tops. Fixed costs are $100,000 and the per-unit contribution to fixed costs is $20. To break even, the company must sell _____ units.

Which of the following statements regarding price and quality is supported by research?

In breakeven analysis, the costs that change with the level of production are considered _____ costs.