d.
determine whether it is financially more feasible to buy a new product or repair a broken
one
e.
create elastic demand for low-involvement products
54. _____ use complex mathematical software to profitably fill unused capacity.
a.
Yield management systems
b.
Capacity correlation systems
c.
Service forecasting tools
d.
Service management systems
e.
Capacity management software
55. Allstate has more than 1,500 price levels that are determined by a complex algorithms that analyzes 16
credit report variables, including late payments and card balances. Allstate is using a _____ to set
prices.
a.
yield management system
b.
capacity correlation system
c.
service forecasting tools
d.
service management system
e.
capacity maintenance tool
56. Which of the following statements about yield management systems (YMS) is true?
a.
The first use of YMS was in the U.S. car industry as it looked for ways to compete with
imports.
b.
YMS eliminate the problem of simultaneous production and consumption from services.
c.
YMS cannot be used by any other businesses but services.
d.
YMS are complex pricing systems used to set equilibrium pricing points.
e.
YMS are mathematically complex systems to make use of underutilized capacity and
reduce the cost of perishability.
57. Behavioral targeting technology is being used by Internet retailers to offer different prices and
promotional offers to different customers based upon their Internet and browsing habits. One potential
downside to this practice is:
a.
lack of profits
b.
consumer privacy
c.
cost
d.
reliability of the system
e.
competitive pressure
58. Chad has calculated the sales volume at which his lemonade stand’s costs equal revenue. Over dinner
he announced to his family that he only needed to sell 50 glasses of lemonade at $5 per glass to cover
all his costs (lumber and nails for the stand, lemons, sugar, etc.). Which important factor has Chad
excluded from his analysis?
a.
fixed and variable cost determination
b.
consumer demand
c.
target return pricing
d.
break-even analysis
e.
market share
59. The two types of costs a marketer needs to consider when setting prices are:
a.
primary and secondary
b.
variable and fixed
c.
marginal and absolute
d.
short-term and long-term
e.
elastic and inelastic
60. A cost that changes with the level of output is called a(n) _____ cost.
a.
liquidity
b.
variable
c.
fixed
d.
asset
e.
elastic
61. Which of the following is most likely to be a variable cost for an Internet retailer that sells spices,
herbs, and seasonings to consumers?
a.
annual lease on mixer used to blend seasonings
b.
executive salaries
c.
rent for building where spices and herbs are repackaged for consumers
d.
workers’ insurance
e.
postage for shipping spices and herbs
62. For a nail salon, the costs associated with the purchase of nail polish and other products like nail polish
remover, sterilized equipment, laundry service for the towels, and the beverages given to customers,
are all examples of _____ costs.
a.
marginal
b.
variable
c.
fixed
d.
promotional
e.
liquidity
63. _____ costs do not change as output is increased or decreased.
a.
Asset
b.
Variable
c.
Fixed
d.
Symmetrical
e.
Status quo
64. Central Bark is a dog resort where pets are pampered. Which of the following is the BEST example of
one of its fixed costs?
a.
payment on the building used by Central Bark
b.
dog biscuits
c.
dog collars and leashes
d.
bubble bath
e.
advertisements in local magazines
65. Mitch owns a pet boarding kennel. The monthly payment on the land he purchased for his kennel, the
mortgage on his small office building, and his business license are all examples of _____ costs.
a.
marginal
b.
variable
c.
fixed
d.
promotional
e.
demand
66. _____ cost is the change in total costs associated with a one-unit change in output.
a.
Variable
b.
Intermittent
c.
Elastic
d.
Marginal
e.
Flex
67. Monthly output at Leisure-Time, Inc. changed from 12 to 13 prefabricated gazebos, and the total costs
changed from $9,000 to $10,500. What is the marginal cost for this company?
a.
$1,500
b.
$2,000
c.
$1,200
d.
$10,000
e.
$12,000
68. When a seller determines the selling price by adding to cost an amount for profit and expenses not
previously accounted for, the seller is using _____ pricing.
a.
profit maximization
b.
demand-oriented
c.
break-even
d.
target return
e.
markup
69. The most popular method used by wholesalers and retailers in establishing a sales price is _____
pricing.
a.
markup
b.
status quo
c.
formula
d.
marginal revenue
e.
break-even
70. Cowboy Malone’s Electric City pays a wholesaler $700 for a television and sells it to a customer for
$1,500. The markup on the television is:
a.
$240
b.
$160
c.
$700
d.
$800
e.
$1,500
71. The difference between the retailer’s cost and the selling price is the _____.
a.
gross margin
b.
markup percentage
c.
profit
d.
keystone
e.
breakeven profit
72. The owner of specialty kitchen retail store wants to determine what price she should put on a set of
mixing bowls. They cost her $7. She desires a markup of 30 percent based on selling price. Which of
the following is closest to the price she should charge her customers?
a.
$19
b.
$12
c.
$15
d.
$10
e.
$18
73. An educational toy store can buy a world globe for $30. If the store owner sells the globe for $45, what
is the markup based on cost?
a.
15 percent
b.
20 percent
c.
25 percent
d.
33 percent
e.
50 percent
74. An educational toy store can buy a world globe for $30. If the store owner sells the globe for $45, what
is the markup based on the selling price?
a.
15 percent
b.
20 percent
c.
25 percent
d.
33 percent
e.
50 percent
75. _____ is the practice of marking up prices by 100 percent (or doubling the cost to set the selling price).
a.
Margin pricing
b.
Keystoning
c.
Mark-on adding
d.
Formula doubling
e.
Symmetrical pricing
76. Keystoning is:
a.
the practice of marking up prices by 100 percent
b.
a method used for determining the point of elasticity
c.
a plan for reducing marginal costs
d.
the practice of maintaining variable costs at one-half of total fixed costs
e.
a method of changing consumers’ perceptions about price
77. The Nest is a retail store owned and operated by an interior designer. The markup on all items in the
store is 100 percent over cost (or double the cost). In this case we would say that the designer uses:
a.
keystoning
b.
target ROI pricing
c.
break-even pricing
d.
marginalizing
e.
double sourcing
78. Profit maximization occurs when:
a.
total costs equals average fixed revenue
b.
average variable costs are larger than average total costs
c.
total costs equal total variable costs
d.
marginal variable costs equal average revenues
e.
marginal revenue equals marginal cost
79. _____ is the extra revenue associated with selling an additional unit of output.
a.
Average revenue
b.
Marginal revenue
c.
Marginal cost
d.
Net profit
e.
Average variable cost
80. As long as the revenue of the last unit produced and sold is greater than the cost of the last unit
produced and sold, a firm should:
a.
continue manufacturing
b.
not use formula pricing
c.
continue using price equilibrium
d.
consider using sales maximization pricing
e.
reach its break-even point very shortly
81. The point at which marginal cost and marginal revenue are equal always results in:
a.
maximization of elasticity
b.
maximization of revenue
c.
maximization of costs
d.
maximization of profits
e.
break-even equilibrium
82. _____ determine what sales volume must be reached for a product before the company’s total costs
equal total revenue and no profits are earned.
a.
Marginal revenue estimates
b.
Price equilibrium analyses
c.
Break-even analyses
d.
Average total cost (ATC) figures
e.
Marginal costs of goods sold
83. The typical break-even model assumes a given fixed cost and a:
a.
variable per unit cost
b.
constant inventory turnover
c.
markup cost attained through keystoning
d.
constant production schedule
e.
constant average variable cost
84. Fixed cost contribution equals:
a.
price times the average fixed cost
b.
price plus the average variable cost
c.
average variable cost plus average fixed cost
d.
break-even quantity times price
e.
price minus the average variable cost
85. Your Memory Lane creates custom art prints that use graphs and icons in a street scene to
commemorate special occasions. Suppose Your Memory Lane has priced its product at $350 per print.
Further, it has determined that the company’s fixed cost is $12,500, with an average variable costs per
print of $250. What is his fixed cost contribution per print?
a.
$225
b.
$100
c.
$605
d.
$2.25
e.
$1.25
86. Your Memory Lane produce custom-made art prints that include graphics and icons to celebrate life’s
special moments. For example, on his wedding anniversary David had an art print produced that
celebrated highlights of his ten years with his wife, Kathy. Suppose Your Memory Lane sells the
custom artwork for $500. It estimates its average variable costs to be $200 per unit produced. It figures
its fixed costs to be $900,000 per year. How many prints does it have to sell to break even?
a.
2,000 prints
b.
1,200 prints
c.
3,000 prints
d.
2,500 prints
e.
6,000 prints
87. Furr Friends sells kits for making personalized grave markers for pets. The company sells each kit for
$25. The average variable cost for each kit is $10, and the total annual fixed costs for plant operation
are $45,000. What is the break-even point in units?
a.
1,800
b.
2,500
c.
3,000
d.
4,500
e.
5,000
88. Regency, Inc. makes disposable cap and gown sets for graduations. Each cap and gown set sells for
$15. The average variable cost for manufacturing 10 cap and gown sets is $100. Total fixed costs for
the year equal $65,000. Calculate the break-even point in units.
a.
650
b.
765
c.
1,300
d.
4,334
e.
13,000
89. Ceylon Express sells bottled pasteurized tea to retailers. It has the following revenues and costs:
Sales price per bottle:
$0.50
Average variable costs per bottle:
$0.30
Total fixed costs (annual):
$50,000
Tax rate:
20 percent
What is the annual break-even point in units for the company?
a.
50,000
b.
250,000
c.
100,000
d.
166,667
e.
500,000
90. Chulo Ibsen makes and sells hand-forged wrought iron firescreens for $125 each. He has determined
that his fixed costs are $8,000, and his average variable costs per firescreen are $45. What is his break-
even point in dollars?
a.
$22,550
b.
$12,500
c.
$10,000
d.
$8,000
e.
$5,875
91. Which of the following statements describes a limitation associated with break-even analysis?
a.
It is sometimes difficult to ascertain whether a cost is fixed or variable.
b.
It requires the calculation of marginal revenue.
c.
It strictly considers demand.
d.
It assumes variable cost per item, which is difficult to calculate.
e.
It can only be expressed as a break-even point in dollar amounts.
92. Which of the following statements about pricing strategies throughout the product life cycle is
FALSE?
a.
During product decline, prices may also decline until there is only one competitor left in
the market.
b.
Price increases during the maturity stage are cost initiated instead of demand initiated.
c.
The maturity stage often brings about price decreases.
d.
Prices stabilize when the product enters the growth stage.
e.
With inelastic demand, price will be set low in the introduction stage.
93. When Apple Inc. developed and introduced the iPhone it was unique as it essentially combined a
cellular phone with an iPod, an Internet browser, and email capabilities. As such, in the short run it
seemed that demand for the product would be inelastic, with no real existing competition. The
recommend pricing strategy in such a situation would be:
a.
low initial price, rising slightly when entering the growth stage
b.
high initial price, falling slightly when entering the growth stage
c.
high price, continuing through growth and maturity
d.
low price, continuing through growth and maturity
e.
low price initially, rising constantly through growth and into maturity
94. In the mature and highly competitive furniture industry, you would expect furniture manufacturers to
engage in:
a.
a price war
b.
price escalation
c.
prestige pricing
d.
above-market pricing
e.
geographical pricing
95. Kroger supermarkets will place well-known brands on the shelves at high prices while offering their
own Kroger brand at lower prices. This practice is an example of:
a.
illegal pricing
b.
selling against the brand
c.
price pressurization
d.
brand cutting
e.
private-label cannibalization
96. Manufacturers can do all of the following to regain some control over the price their products are sold
for at the retail level EXCEPT:
a.
require resellers to maintain prices in line with competitors’ prices
b.
developing brand loyalty in consumers by delivering quality and value
c.
avoiding doing business with price-cutting discounters
d.
franchising
e.
using an exclusive distribution system
97. Shopping bots:
a.
encourage a more creative use of advertising
b.
link manufacturers, suppliers, and customers
c.
create opportunities for prestige pricing
d.
provide a means for comparison shopping
e.
create inelastic demand
98. Which of the following statements about the Internet is true?
a.
The Internet has shifted all shopping power to consumers.
b.
Consumer reviews tend to be equal in quality.
c.
Business-to-business auctions on the Internet are likely to be more important than
consumer auctions in the future.
d.
Fraud is not a problem on the Internet.
e.
Extranets are programs that search the Internet for the best price for a particular product.
99. During the hot summer months or the week before a new class starts if there is still space available, the
Nick Price golf school in Orlando, Florida offers a 25 percent reduction to get golfers during the off-
season or those making a last-minute decision. This is an example of pricing strategy used as a(n):
a.
distribution tool
b.
price enhancer
c.
product strategy
d.
direct sales tool
e.
promotion strategy
100. Many consumers, especially when faced with an uncertain purchase decision, think that a high price:
a.
is a signal of quality
b.
is an indication that consumers are being ripped off
c.
will always lead to major price discounts to wholesalers and retailers that distribute it
d.
is a sign of the company’s overall market share
e.
indicates that the brand was slipping into the decline stage of the product life cycle but has
had a sudden resurgence of growth
101. David likes New Balance running shoes. However, when he stopped by the Foot Locker to buy a new
pair of running shoes he notice that Nike had a new pair of running shoes that cost $350. To David the
higher price of the Nike shoe indicated that it would be a better pair of running shoes. This is an
example of _____.
a.
premium pricing
b.
price lining
c.
prestige pricing
d.
exclusive pricing
e.
selective pricing
102. When the Apple iPhone 3G was introduced the Apple iTunes web site also began selling small
program “apps” written by third parties that could be run on the iPhone. One interesting app was the “I
Am Rich” application. For a price of $1,000 you could buy this app that did nothing but display a red
gem on the iPhone’s screen. The description of the app stated that this red icon would remind you (and
others you show it to) “that you were rich enough to afford this.” Six of the applications were sold
before Apple Inc. removed the app from iTunes. At the $1,000 price the author of the app was using
_____ pricing as part of his marketing approach.
a.
snob appeal
b.
prestige
c.
exclusive
d.
selective
e.
unique
103. Marketing managers who attempt to raise the quality image of their product by selling it at high prices
are following a(n) _____ strategy.
a.
profit maximization
b.
market share
c.
maintained markup pricing
d.
prestige pricing
e.
investment asset
104. Prestige pricing:
a.
equalizes supply and demand
b.
uses high prices to promote a high-quality product
c.
is the practice of marking up prices by 100 percent
d.
is also called leader pricing
e.
emphasizes the monetary nature of price
105. Laurie knows little about cooking and does not want to spend the time to learn how to make a quiche.
However, she has been asked to bring a quiche to an office retirement party. Not wanting to make a
poor choice, she is likely to:
a.
intuitively make the right choice
b.
avoid making a decision by not attending the party
c.
buy the most expensive pre-made quiche (perhaps paying too much), guessing that the
price is related to quality
d.
research the product and buy the least expensive frozen quiche she can find
e.
buy the least expensive frozen quiche because most consumers feel that price is not
directly related to quality
106. The dimensions of quality that are important to consumers include:
a.
versatility
b.
serviceability
c.
performance
d.
ease of use
e.
all of the choices
107. The marketing manager of icruise.com (a travel Web site targeted to consumers who want a luxury
vacation) finds that the firm can gain market share and become the industry leader if it slashes prices
by 50 percent during the month of December. However, the vice president of finance is committed to
reporting a 25 percent return on investment at all times. This conflict illustrates:
a.
a need to eliminate low-profit products
b.
a lack of corporate concentration on the marketing concept
c.
how pricing operates in a mature marketplace
d.
the need for trade-offs in pricing objectives
e.
how target markets can be ignored
108. After establishing pricing goals, managers should estimate total revenue at a variety of prices. Next,
they should _____. Only after performing this task are they are ready to estimate how much profit and
how much market share can be earned at each possible price.
a.
choose the ROI target
b.
determine corresponding costs for each price
c.
estimate industry supply
d.
implement pricing segmentation
e.
establish geographic pricing heuristics
109. Which of the following is a pricing policy whereby a firm charges a high introductory price, often
coupled with heavy promotion?
a.
penetration pricing
b.
price skimming
c.
price capping
d.
profit pricing
e.
price maximization
110. A 16-ounce bottle of Prairie Herb vinegar sells for $4.95, and a 16-ounce bottle of Heinz vinegar costs
$1.05. Prairie Herb vinegar is new to the market, perceived to be of higher quality, and provides a
unique flavor to foods even though it is used in the same way as Heinz vinegar. Prairie Herb vinegar is
most likely using a _____ policy.
a.
penetration pricing
b.
status quo pricing
c.
price-skimming
d.
bundling cost pricing
e.
geodemographic pricing
111. A shortage of blood for transfusions for injured animals has resulted in the introduction of a
synthesized product called Oxyglobin, which can be used effectively as a blood replacement. The
manufacturer of the product has put a high price on the product in order to recoup its research and
development costs. The manufacturer of Oxyglobin is using a _____ policy.
a.
price-banding
b.
penetration pricing
c.
price-lining
d.
bundling costs
e.
price-skimming
112. A shortage of blood for transfusions for injured animals has resulted in the introduction of a
synthesized product called Oxyglobin, which can be used effectively as a blood replacement. The
manufacturer of the product has put a high price on the product in order to recoup its research and
development costs. The manufacturer of Oxyglobin is using a _____ policy.
a.
price-banding
b.
penetration pricing
c.
price-lining
d.
bundling costs
e.
price-skimming
113. The price-skimming strategy is sometimes called a “market-plus” approach to pricing because it
denotes a high price relative to the prices of competing products. This strategy works best when:
a.
competition is abundant
b.
revenues are equal to expenses
c.
supply is greater than demand
d.
production capacity is large and flexible
e.
demand is greater than supply
114. When the Mosquito Magnet was introduced, it was designed to rid the immediate area of mosquitoes
and other annoying insects. The technology for the Mosquito Magnet had taken years to develop. It is
a patented grill-like apparatus that emits carbon dioxide to attract bugs to a fan that draws them into
the device where they die. What type of pricing policy would you recommend the company use to
introduce this product to the market?
a.
status quo pricing
b.
penetration pricing
c.
price-skimming
d.
flexible pricing
e.
leader pricing
115. For which of the following situations would a price-skimming strategy be most appropriate?
a.
the addition of a new comic book series with an obviously gay hero
b.
the introduction of a new brand of bottled water
c.
the elimination of demand for low wattage light bulbs
d.
the introduction of a unique, roomy automobile model that has extremely low energy and
fuel costs
e.
the introduction of a Barbie Olympic champion doll by Mattel and the International
Olympic Committee
116. The DCS Stainless Steel Gas Grill for outside cooking costs $3,995. The market for a grill that could
easily replace a kitchen range is limited even though a lot of people have seen articles about this grill
in cooking magazines and in the cooking section of newspapers. There is no potential competitor for
this grill. The _____ strategy is probably best.
a.
price-skimming
b.
penetration pricing
c.
status quo
d.
cost bundling
e.
price-lining
117. When a firm introduces a new product at a relatively low price because it hopes to reach the mass
market, it is following a _____ strategy. The low price is designed to capture a large share of a
substantial market and produce lower production costs.
a.
penetration pricing
b.
price-insensitive demand
c.
price-skimming
d.
price elasticity
e.
cost bundling
118. Marketers must take care when using _____ since a lower price often signals to consumers that
product quality is also low.
a.
price skimming
b.
status quo pricing
c.
penetration pricing
d.
unbundling
e.
cost sharing
119. The market for turkey products is large. If a major producer of turkeys were to introduce a boneless
fresh turkey wrapped around savory dressing, most of the large market for this new product would be
aware of its existence. The market is price sensitive, and there is some potential competition. The
appropriate strategy would be:
a.
price skimming
b.
penetration pricing
c.
status quo
d.
cost bundling
e.
price lining
120. Jones Soda Company and Big Sky Brands have introduced Jones Soda Carbonated Candy, a candy
that delivers a blast of the most popular Jones Soda flavors along with an oddly enjoyable tongue-
tingling sensation. Which pricing strategy would be appropriate if the company wants to convince
price-sensitive consumers to try it and not buy some other brand?
a.
price-lining
b.
price-fixing
c.
status quo pricing
d.
penetration pricing
e.
price-skimming
121. Pharmacies are a new addition to Sam’s Clubs. They could exert a greater influence on the marketplace
for prescription drugs than their newness indicates. Sam’s has a stated philosophy of marking up
merchandise a maximum of 14 percent. When that philosophy is applied to prescription drugs,
especially generics, warehouse club prices can be dramatically lower than those of conventional
drugstores, supermarkets, or discount store pharmacies. Sam’s is using a _____ strategy to convince
consumers to use its pharmacies rather than its competitors.
a.
penetration pricing
b.
price-insensitive demand
c.
price-skimming
d.
price elasticity
e.
cost bundling
122. A penetration strategy tends to be effective in a price-sensitive market. Thus, one of the purposes of
penetration pricing is to:
a.
recoup product development costs quickly
b.
discourage competitors from entering the market
c.
produce a large margin of profit per unit
d.
develop exclusive distribution
e.
attract the price-insensitive buyer who demands the latest in technology
123. A penetration pricing strategy tends to be most effective:
a.
when demand is relatively inelastic
b.
under unitary conditions
c.
in price-sensitive markets
d.
when the company can only perform small production runs
e.
if unit costs are high
124. Penetration pricing means charging a relatively low price for a product as a way to reach the mass
market. The low price is designed to capture a large share of a substantial market. Thus, penetration
pricing:
a.
tends to be more effective in a less price-sensitive market
b.
tempts competitors to enter the market
c.
provides a large profit per unit sold
d.
recoups product development costs quickly
e.
tends to lower production costs
125. A firm charging a price identical to or very close to the competition’s price is using a _____ strategy.
a.
differentiation pricing
b.
penetration pricing
c.
preemptive pricing
d.
status quo pricing
e.
leader pricing
126. JC Penney sends representatives to shop at similar retailers to make sure it is charging comparable
prices for its products. JC Penney probably uses a _____ strategy.
a.
leader pricing
b.
preemptive pricing
c.
status quo pricing