40) ________ = (Unit price × Quantity sold) − Total cost.
A) Total revenue
B) Variable cost
C) Net present value
D) Profit
E) Break-even point
41) According to the profit equation, profit equals
A) Total cost + Total revenue.
B) Total revenue − Total cost.
C) Marginal revenue − Marginal cost.
D) Price × Quantity.
E) Total revenue + Marginal cost.
22
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42) The formula Total revenue − Total cost or [(Unit price × Quantity sold) − (Fixed cost +
Variable cost)] represents
A) the value equation.
B) the sales ratio.
C) average revenue.
D) the break-even point.
E) the profit equation.
Answer: E
Explanation: Key term definition—profit equation.
Difficulty: 1 Easy
Topic: Setting Prices
Learning Objective: 13-01 Identify the elements that make up a price.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
43) A firm’s profit equals
A) Total cost + Total revenue or [(Fixed cost + Variable cost) + (Unit price × Quantity sold)].
B) Total revenue − Total cost or [(Unit price × Quantity sold) − (Fixed cost + Variable cost)].
C) Total cost − Marginal cost or [(Fixed cost + Variable cost) − (Unit price × Quantity sold)].
D) Total cost − Variable cost or [(Fixed cost + Variable cost) − (Unit price × Quantity sold)].
E) Total revenue/Total cost or [(Unit price × Quantity sold) ÷ (Fixed cost + Variable cost)].
44) Calculate a firm’s profit using the following information: the unit price (P) for a product is
$40; the quantity sold (Q) is 2,000; the fixed cost (FC) is $50,000; and the variable cost (VC) is
$20,000.
A) $10,000
B) $50,000
C) $110,000
D) $150,000
E) cannot be determined with the information provided
45) Which of the following are elements involved in Step 1 of the price-setting process?
A) objectives and constraints
B) estimation of demand, sales revenue, and price elasticity
C) cost estimation, marginal analysis, and break-even analysis
D) demand for the product class and brand, newness of the product, and competition
E) market segmentation targeting, and positioning
46) Which of the following would be an example of an objective in Step 1 of the price-setting
process?
A) We need to set an initial price of $259 per unit.
B) We need to obtain a 10 percent market share.
C) We need to find the least expensive distributor.
D) We need to make allowances for large quantity orders.
E) We need to increase the price during the holiday shopping season.
47) Which of the following would be an example of an objective in Step 1 of the price-setting
process?
A) We need to set an initial price of $259 per unit.
B) We need to find the least expensive distributor.
C) We need to make a profit of at least $1.2 million.
D) We need to make allowances for large quantity orders.
E) We need to increase the price during the holiday shopping season.
48) Which of the following would be an example of an objective in Step 1 of the price-setting
process?
A) We need to find the least expensive distributor.
B) We need to make allowances for large quantity orders.
C) We need to increase the price during the holiday shopping season.
D) We need to forget profits right now; just make sure we break even.
E) We need to hire a professional accountant.
49) Which of the following would be an example of a constraint in Step 1 of the price-setting
process?
A) We can rely on our reputation for our other products in the line.
B) Experts are predicting a surge in global demand.
C) We need to make allowances for large quantity orders.
D) We should increase the price during the holiday shopping season.
E) Remember, we don’t know what the demand for this new product will be.
50) Which of the following would be an example of a constraint in Step 1 of the price-setting
process?
A) We can rely on our reputation for our other products in the line.
B) Experts are predicting a surge in global demand.
C) We need to make allowances for large quantity orders.
D) We should increase the price during the holiday shopping season.
E) We’re going to face some aggressive competition.
51) An analysis of a prospective product shows that sales for it are expected to grow by at least
10 percent each year over the next five years before it enters the maturity phase of its product life
cycle. This type of analysis would provide useful information in which step of the price-setting
process?
A) identifying pricing objectives and constraints
B) determining cost, volume, and profit relationships
C) estimating demand and revenue
D) selecting an appropriate (approximate) price lining strategy
E) making special adjustments to list or quoted price
52) Which of the following represent elements of Step 2 of the price-setting process?
A) constraints and objectives
B) estimation of demand, sales revenue, and price elasticity
C) cost estimation, marginal analysis, and break-even analysis
D) demand for the product class and brand, newness of the product, and competition
E) market segmentation, targeting, and positioning
53) George and Alice Renfro decided to start a family business in 1990 to produce chowchow, a
Southern regional food. To determine how they would price the chowchow, the Renfros had to
examine (1) the demand for the product (e.g., would people eat store-bought?); (2) the costs of
the jars for and bottling of the chowchow; and (3) the cost to distribute the product to area
grocery stores. The Renfros are doing which step of the price-setting process?
A) identifying pricing constraints
B) estimating break-even points and revenue points
C) setting the list price
D) selecting an approximate price level
E) determining cost, volume, and profit relationships
54) Which of the following statements would most likely be spoken by someone in the midst of
estimating demand and revenue in the price-setting process?
A) “It’s important to offer discounts to seniors.”
B) “We have to try to achieve an 8 percent profit share.”
C) “The starting price should be $4.99 and we can raise the price again in six months.”
D) “But, if we increase the price even by $1, how many customers will we lose?”
E) “We should probably price the extra-large version somewhere between $600 and $650.”
55) Which of the following are elements of determining cost, volume, and profit relationships in
the price-setting process?
A) objectives and constraints
B) estimation of demand, sales revenue, and price elasticity
C) cost estimation, marginal analysis, and break-even analysis
D) demand for the product class and brand, newness of the product, and competition
E) market segmentation targeting, and positioning
56) Which of the following statements would most likely be spoken while determining cost,
volume, and profit relationships in the price-setting process?
A) “In order to break even, we will need to sell at least 500,000 units.”
B) “We have to try to achieve an 8 percent profit share.”
C) “The starting price should be $4.99 and we can raise the price again in six months.”
D) “But, if we increase the price even by $1, how many customers will we lose?”
E) “We should probably price the extra-large version somewhere between $600 and $650.”
57) The break-even point for a large grain farming operation was calculated to be 2 million
bushels of corn. Break-even analysis would take place during which step of the price-setting
process?
A) identify pricing objectives and constraints
B) determine cost, volume, and profit relationships
C) estimate demand and revenue
D) select an approximate price level
E) make special adjustments to list or quoted price
58) While pricing objectives frequently reflect corporate goals, pricing constraints often relate to
A) stockholder demands.
B) political ideology.
C) conditions existing in the marketplace.
D) an organization’s code of ethics.
E) the financial realities within the organization itself.
59) Specifying the role of price in an organization’s marketing and strategic plans is referred to as
A) choosing a pricing plan.
B) defining a profit mission.
C) developing pricing constraints.
D) setting pricing objectives.
E) determining the list or quoted price.
60) Pricing objectives involve
A) reconciling the prices charged by an organization to the values set forth in its business
mission.
B) taking specific steps to capitalize on an organization’s internal strengths as they apply to price.
C) specifying the role of price in an organization’s marketing and strategic plans.
D) taking specific steps to compensate for an organization’s weaknesses as they apply to price.
E) subjectively setting intrinsic values to all products and services offered by an organization.
61) Which of the following statements regarding pricing objectives is most accurate?
A) Pricing objectives should never change.
B) Pricing objectives may change depending on the success of a company’s products.
C) Pricing objectives may change depending upon the cost of advertising.
D) Pricing objectives are established exclusively by the marketing department.
E) Pricing objectives are extremely sensitive to even the slightest change in the local economy.
62) All of the following are examples of pricing objectives except which?
A) market share
B) survival
C) unit sales
D) social responsibility
E) product obsolescence
63) A firm’s profit objective is often measured in terms of ROI. The acronym ROI stands for
A) risk opportunity investment.
B) revised organizational incentives.
C) return on investment.
D) regulated organizational investments.
E) replenishment of organizational inventories.
64) Several pricing objectives relate to a firm’s profit. In one known as ________, a company
gives up immediate profit in exchange for achieving a higher market share in the hopes of
penetrating competitive markets.
A) maximizing current profit
B) target return
C) break-even strategy
D) minimizing risk
E) managing for long-run profits
65) Managing for long-run profits as a pricing objective implies that a company will
A) give up immediate profit in exchange for achieving a higher market share in hopes of
penetrating competitive markets.
B) maintain a given price range to ensure there is no loss of customers over time, even if the
profit margin declines.
C) invest excess cash in bonds and certificates of deposit in order to counteract any inflationary
economic changes in the future.
D) reinvest all profits into market research or product research rather than returned to
shareholders.
E) drop all products, product lines, or divisions that cannot maintain their pricing goals.
66) Three different objectives relate to a firm’s profit. One objective, known as ________, is
common in many firms because the targets can be set and performance measured quickly.
A) managing for long-run profits
B) target return
C) break-even strategy
D) maximizing current profit
E) minimizing risk
67) A maximizing current profit objective implies that a company chooses to
A) set targets for which performance can be measured quickly.
B) give up immediate profit in exchange for achieving a higher market share in hopes of
penetrating competitive markets.
C) set a profit goal that is often determined by its board of directors.
D) reduce investment in any further market or product research.
E) set prices based on return on sales.
68) Three different objectives relate to a firm’s profit, which is often measured in terms of return
on investment. One objective, known as ________, occurs when a firm sets a profit goal, usually
determined by its board of directors.
A) maximizing current profit
B) managing for long-run profits
C) target return
D) break-even strategy
E) minimizing risk
69) Three different objectives relate to a firm’s profit, each of which have different implications
for pricing strategy. One of these is
A) accumulating profits.
B) reinvesting profits.
C) redistributing profits.
D) maximizing gross margin.
E) achieving a target return.
70) A target return profit objective implies that a company chooses to
A) set targets whose performance can be measured quickly.
B) give up immediate profit in exchange for achieving a higher market share in hopes of
penetrating competitive markets.
C) set a profit goal that is often determined by its board of directors.
D) reduce investment in any further market or product research.
E) set prices based on return on sales.
71) Given that a firm’s profit is high enough for it to remain in business, an objective may be to
________, which will in turn lead to increases in market share and profit.
A) increase the commitment to social responsibility
B) increase dollar sales revenue
C) decrease unit volume while maintaining price
D) increase research and development funding for new product line extensions
E) continue with previous policies that seem to be working
72) Which of the following statements regarding sales goals is most accurate?
A) For marketing managers, sales revenue or unit sales can be easily translated into meaningful
targets for a product line or brand.
B) Cutting prices for a single product in a product line to raise unit sales often results in an
increase in sales for related products in the line.
C) Very often, cutting prices results in a decrease in market share.
D) Setting unit volume sales as a pricing objective results in price wars with competitors, so the
practice is limited to industries with few competitors.
E) An advantage of increasing unit volume sales is that it always results in an increase in profits.
73) The ratio of the firm’s sales revenues or unit sales to those of the industry (competitors plus
the firm itself) is referred to as
A) target return on sales.
B) industry profit.
C) unit volume.
D) market share.
E) profit.
74) Market share is the ratio of the ________ to those of the industry, including the firm itself.
A) target return on sales
B) marginal profit of the firm
C) firm’s sales revenues or unit sales
D) marketing expenses of the firm
E) profits of the firm
75) Companies often pursue a market share objective when
A) industry sales are flat or declining.
B) profits are increasing.
C) industry sales are beginning to rise.
D) there is a sudden increase in production costs.
E) stockholders are seeking higher dividends.
76) Which of the following statements regarding a market share pricing objective is most
accurate?
A) A market share objective is often difficult for product managers since stockholders are
looking for immediate dividends (return of profits).
B) Although increased market share is a primary goal of some firms, others see it as a means to
other ends, such as increased sales or profits.
C) Selecting market share as a pricing objective is particularly effective if industry sales are
rising.
D) An advantage of market share as a pricing objective is that it is particularly insensitive to
competitors’ actions.
E) Ironically, a market share objective is realized by raising prices in order to increase consumer
confidence during the decline stage of a product’s life cycle.
77) An online movie streaming service charges $14.99 per month for its basic package.
However, when a competitor introduced the same service at $13.99, the firm dropped its price to
$13.99. The firm most likely made this price reduction in an attempt to
A) decrease revenue but increase profit.
B) increase profit by increasing revenue.
C) maintain market share.
D) decrease market share.
E) increase efficiency.
78) If the CEO of the Clorox Co. were to say, “We want to control 60 percent of the bleach
market within the next five years,” he would have set a ________ pricing objective.
A) profit
B) sales
C) unit volume
D) market share
E) social responsibility
79) Unit volume as a pricing objective refers to
A) the quantity of products to be produced or sold.
B) the ratio of price per unit to unit variable cost.
C) the ratio of production costs to the minimum sales price that would still generate profit.
D) the total quantity of product sold by a firm relative to the total quantity of product sold by all
firms in the industry.
E) variable cost expressed on a per unit basis for a product.