d.
flexible pricing
e.
functional pricing
127. State laws that put a lower limit on wholesale and retail prices are called _____. In states that have
these laws, selling below cost is illegal.
a.
unfair trade practice acts
b.
price floor laws
c.
protectionism acts
d.
transparency laws
e.
price edicts
128. States developed unfair trade practice acts to
a.
enforce the Sherman Act that makes bait pricing illegal
b.
prevent oligopoly leaders from getting together and fixing prices at the highest the market
will bear
c.
establish penalties for companies that break the Clayton Act by engaging in predatory
pricing
d.
make sure that all pricing policies are equitable
e.
protect small, local firms from giant companies that operate efficiently on razor-thin profit
margins
129. In 2008 United Airlines and American Airlines disclosed settlements in a class-action lawsuit over
allegations of airfreight price fixing. This means the companies _____.
a.
tried to charge fees for air fright that were below costs
b.
charged customers different amounts for the same shipments
c.
agreed on the price they would charge customers for air freight
d.
used uniform geographic pricing
e.
created an artificial demand for shipping
130. South Africa’s Competition Commission accused South African Airways of conspiring with its partner,
Germany’s Lufthansa, to set prices on flights between Cape Town, Johannesburg, and Frankfurt. As a
result, the two airlines were charged with:
a.
price discrimination
b.
price fixing
c.
bait pricing
d.
unfair trade practices
e.
channel control pricing tactics
131. A situation in which a manufacturer, and its distributors agree that the retailers will sell the
manufacturer’s products at a certain price, at or above the price floor, is called _____.
a.
decoy pricing
b.
resale price maintenance
c.
functional pricing
d.
bait pricing
e.
price pressuring
132. If Dunn’s Best Jams and its distributors agree that the retailers will sell Dunn’s jams at a certain price,
at or above the price floor, Dunn’s and its distributors probably practice _____.
a.
unfair pricing
b.
resale price maintenance
c.
deceptive pricing
d.
price escalation
e.
price depression
133. Which of the following prohibits any firm from selling to two or more different buyers, within a
reasonably short time, commodities (not services) of like grade and quality at different prices where
the result would be to substantially lessen competition?
a.
Sherman Act
b.
Federal Trade Commission Act
c.
Food and Drug Administration Act
d.
Anti-Discrimination Act
e.
Robinson-Patman Act
134. Acme Lawnmowers sells its mowers to retailers at different prices, depending on whether they are
independent stores or members of a national chain. It uses _____.
a.
unfair trade practices
b.
price fixing
c.
price discrimination
d.
predatory pricing
e.
bait pricing
135. All of the following elements must be present for a pricing practice to be considered discriminatory
under the Robinson-Patman Act EXCEPT:
a.
The seller must charge different prices to different customers for the same product.
b.
The seller must make two or more actual sales within a reasonably short time.
c.
The transaction must occur in interstate commerce.
d.
The products sold must not be commodities.
e.
There must be significant competitive injury.
136. The practice of charging a very low price for a product with the intent of driving competitors out of
business or out of a market is called:
a.
price discrimination
b.
predatory pricing
c.
price fixing
d.
price manipulation
e.
anti-competitive pricing
137. When Microsoft introduced its Zune MP3 player, many people thought it would capture the MP3
player market by pricing its product so low that a smaller competitor, like the Apple iPod, would be
unable to compete. If Microsoft had used this approach it have been would be guilty of _____.
a.
predatory pricing
b.
unfair trade practices
c.
channel manipulation pricing
d.
price fixing
e.
price discrimination
NARRBEGIN: Tesla Motors
Tesla Motors
“Going green” doesn’t have to be boring. The Tesla Roadster Sport is an electric car that goes from 0
to 60 in four seconds and drives more like a race car than an environmentally-friendly ride. But that
level of performance will set you back $128,500. As of 2009, Silicon Valley-based Tesla Motors, Inc.
was the only company offering highway-compatible electric cars. Most Roadster Sport buyers are car
enthusiasts and are buying them for the “fun toy” aspect of having an electric car rather than for
environmental reasons.
NARREND
138. Refer to Tesla Motors. The price of the Roadster was set so that total revenue was as large as possible
relative to total costs. This represents a _____ approach.
a.
profit maximization
b.
market share pricing
c.
demand-oriented pricing
d.
sales maximization
e.
status quo pricing
139. Refer to Tesla Motors. If Tesla had assets of $5 million and net profits after taxes of $550,000, what is
Tesla’s return on investment (ROI)?
a.
1 percent
b.
9 percent
c.
11 percent
d.
$14,135
e.
$4,450,000
140. Refer to Tesla Motors. What is the fixed cost contribution for the Roadster given average variable
costs of $50,500?
a.
$50,500
b.
$78,000
c.
$128,500
d.
$179,000
e.
$500,000
141. Refer to Tesla Motors. If total fixed costs are $23,400,000 and the average variable costs is $50,500,
how many Roadsters must Tesla sell to break-even?
a.
130
b.
182
c.
250
d.
300
e.
463
142. Refer to Tesla Motors. Tesla set the price of the Roadster high because the company wanted to
promote a high-quality image. What type of pricing does this represent?
a.
prestige pricing
b.
elite pricing
c.
penetration pricing
d.
quality pricing
e.
complete pricing
NARRBEGIN: Specialty Cakes
Specialty Cakes
Imagine you’re planning an after-symphony fund-raising party, and you need a life-size grand piano
cake. Or, you are a developer proposing a new shopping center to a group of investors, and you want
to serve a cake shaped like an architectural rendition of the center. Is this impossible? No, you just
need to contact Cecilia Villaveces Cakes. She actually built a life-size grand piano for a gala in Macon,
Georgia. You can expect to pay anywhere from $75 to $10,000 for one of Cecilia’s artistic creations,
depending on complexity of design and size. She uses only the best ingredients, and no two cakes are
ever quite alike.
NARREND
143. Refer to Specialty Cakes. Although many factors determine the prices charged by Cecilia Villaveces
Cakes, the two primary determinants are:
a.
costs of manufacturing and distribution costs
b.
stage of the product life cycle and costs to the consumers
c.
the demand for the good and cost to the seller
d.
demand by the consumer and perceived quality
e.
distribution and promotion strategies used by the cake maker
144. Refer to Specialty Cakes. Many party planners in the Southeast will only use Cecilia Villaveces Cakes
at their parties—no matter what the price is. They know that Cecilia’s cakes can make a party a success.
Moreover, the cakes are what people remember most about the parties. From this description, you
should assume Cecilia Villaveces Cakes have a(n):
a.
elastic demand
b.
unitary elasticity
c.
inelastic supply
d.
inelastic demand
e.
elastic supply
145. Refer to Specialty Cakes. Which of the following is the BEST example of a fixed cost for Cecilia
Villaveces Cakes?
a.
eggs, butter, sugar
b.
delivery costs
c.
part-time employees
d.
electricity consumption
e.
food preparation licenses
146. Refer to Specialty Cakes. Which of the following is the BEST example of a variable cost for Cecilia
Villaveces Cakes?
a.
life insurance on Cecilia
b.
flour and sugar
c.
ovens used for cooking cakes
d.
business license
e.
interest payment to the bank
147. Refer to Specialty Cakes. To set the price of her cakes, Cecilia simply doubles her costs, which often
include several hours of labor and expensive raw materials. This method of price setting is called:
a.
mark-on pricing
b.
premium pricing
c.
keystoning
d.
add-on pricing
e.
superimposed pricing
148. Refer to Specialty Cakes. There are many occasions for which people may need to buy a cake, but
most people do not have the time or interest to learn about cakes and their bakers. These people who
do not know about the quality of the Cecilia Villaveces Cakes might choose them because they:
a.
equate price and quality
b.
know cakes are in the mature stage of their product life cycle
c.
realize that this is a monopolistic industry
d.
believe there is not a relationship between price and quality
e.
desire value-added services
NARRBEGIN: American Girl Doll
American Girl Doll
The American Girl catalog began as a concept to introduce today’s girls to girls who lived in the past.
Each historically accurate doll is carefully crafted and dressed and has books to describe her life. For
example, Kristen is an 1854 pioneer girl who is growing up in Minnesota. Her story begins with her
long sea voyage from Sweden. The basic doll dressed in a calico dress and striped apron plus the
hardcover story of how she got to Minnesota costs $90. Six more hardback books of Kristen’s life are
available for $74.95. Kristen’s nightgown costs $20, and a matching one for the doll owner is an
additional $38. Buy both together and the price is only $50. A hand-painted wooden bed and trunk for
Kristen are available for $213. Shipping costs vary with the price of the merchandise ordered.
NARREND
149. Refer to the American Girl Doll. What is the revenue to American Girl if it sells 20 basic Kristen doll
and books?
a.
$90.00
b.
$100.95
c.
$427.95
d.
$1,800.00
e.
$3,600
150. Refer to the American Girl Doll. American Girl is the primary seller of historically accurate dolls with
accompanying books in a market where there is very little competition. It has no cash flow problems
and is not interested in maximizing its sales. From this information, you should know American Girl
has _____ pricing objectives.
a.
status quo
b.
psychological
c.
profit-oriented
d.
sales-oriented
e.
supply-derived
151. Refer to the American Girl Doll. The popularity of the American girl dolls is so great that an increase
in the price of the basic Kristen doll and books by 5 percent will not significantly affect the demand for
the product. The means that the demand for the American Girl doll is:
a.
elastic
b.
derived
c.
a multiplier
d.
inelastic
e.
symmetrical
152. Refer to the American Girl Doll. Based on the information in the narrative above, which of the
following factors is most likely to affect the elasticity of demand for the doll?
a.
the absence of substitutes
b.
the existence of complementary products
c.
the price relative to purchasing power
d.
product durability
e.
a variety of alternative uses for the product
153. Refer to the American Girl Doll. In terms of the costs of producing the doll and its accessories, the
salary of the graphic designer who does the layout for the American Girl catalog is a(n):
a.
markup cost
b.
variable cost
c.
fixed cost
d.
derived cost
e.
elastic cost
154. Refer to the American Girl Doll. In terms of producing the doll and its accessories, the calico fabric
used to make Kristen’s dress is an example of a(n):
a.
markup cost
b.
variable cost
c.
fixed cost
d.
derived cost
e.
elastic cost
155. Refer to the American Girl Doll. You can buy a doll at Wal-Mart for $5.99. The high price of the
American Girl doll is used to promote a high-quality image. The American Girl uses a _____ pricing
strategy.
a.
markup
b.
demand-based
c.
prestige
d.
penetration
e.
supply-derived
NARRBEGIN: Smelly Fruit
Smelly Fruit
At first glance there is little to like about the durian. The durian is a fruit popular in Thailand that is
spiky outside and stinky on the inside. When confronted with the durian for the first time, the Wall
Street Journal recently reported that westerners often describe its distinctive sulphurous smell with
words like stinky socks and manure. However, the durian is so popular in Thailand that one variety of
the durian fruit, called the Kan Yao, has been selling for as high as $200. Even at that price, supply of
the Kan Yao cannot keep up with demand. There are approximately 30 varieties of the durian grown in
Thailand, with the most plentiful selling in the $15 range. The yellow flesh of the durian, the part you
eat, has very powerful smell, but possesses a sweet, nutty taste that Thais cannot seem to get enough of
at any price.
NARREND
156. Refer to Smelly Fruit. If it cost a Thai farmer $100 to produce and $25 to market the Kan Yao durian
that she sells for $200 at the marketplace, her revenue, for each durian sold, would be _____.
a.
$125
b.
$200
c.
$25
d.
$100
e.
$325
157. Refer to Smelly Fruit. Suppose a Thai farmer sells 10 Kan Yao durians in the marketplace at the going
rate of $200 each. If it cost a Thai farmer $125 to produce and market the Kan Yao durian that she has
sold, the difference between these two numbers ($75), times the number sold (10), represents the
farmers _____.
a.
ROI
b.
revenue
c.
profit
d.
returns
e.
COGS
158. Refer to Smelly Fruit. Suppose you have decided to buy land in Thailand and become a durian
producer. You see that the customary price for a Kan Yao is $200, so that is the price you decide to
charge for your durian crop. This suggests you are using a _____ approach to setting your price.
a.
Profit maximization
b.
Market share
c.
Return on investment (ROI)
d.
Sales maximization
e.
Status quo
159. Refer to Smelly Fruit. At $200 per Kan Yao demand for the fruit appears to be higher than supply.
Suppose at a price of $225, the amount demanded exactly meets the amount farmers are willing and
able to supply. In this case the $225 price would be considered the _____ price.
a.
Price equilibrium
b.
Sales maximization
c.
Profit maximization
d.
ROI maximization
e.
Yield management
160. Refer to Smelly Fruit. Over the past two years the price for Kan Yao durian fruit has increased by
50%. If the amount sold has remained almost constant, we would say that demand is _____ :
a.
elastic
b.
inelastic
c.
unitary
d.
Highly elastic
e.
Moderately elastic
161. Refer to Smelly Fruit. The durian fruit is a very unique product. To many Thai’s no other fruit taste or
smells anything like the durian. It’s uniqueness, in the eyes of the customer, would tend to have which
of the following
a.
It would have little affect.
b.
It would tend to make the durian more price elastic.
c.
It would tend to make the durian more price inelastic.
d.
It would tend to raise the price in comparison to purchasing power.
e.
It would tend to impact the durian’s stage in the PLC.
NARRBEGIN: Apple iPhone
Apple iPhone
Apple Inc. iPhone went on sale on June 29, 2007. Apple’s loyal and enthusiastic customer base is
known for rushing to purchase its new products and the iPhone enjoyed a tremendous amount of
“buzz” before its introduction. As expected, the iPhone entered the market at what many believed to be
a high price ($599). However, within weeks the price was reduced to $399. By the end of 2007 over 8
million iPhones had sold in the U.S. marketplace. By most, if not all measures, the original iPhone was
a huge success for Apple and it exclusive U.S. carrier AT&T.
On July 11th, 2008, Apple Inc. released the iPhone 3G, which it advertised as twice as fast as the
original iPhone for half the cost. However, in order to obtain an iPhone at the new price of $199,
buyers had to agree to a two-year service contract with AT&T. This allows iPhone users to receive
phone calls and email, and search the web on the same device. A single charge of $59.99 from AT&T
included 450 minutes of cellular calls, with free nights and weekend minutes, unlimited data, visual
voicemail, 200 text messages, rollover minutes, and unlimited mobile-to-mobile service within the
AT&T network. This approach succeeded and over a million iPhone 3Gs were sold during the
introductory weekend.
NARREND
162. Refer to Apple iPhone. When Apple Inc. introduced the iPhone at a high price it was probably using a
_____ strategy to maximize profits.
a.
price-bracketing
b.
penetration pricing
c.
price-lining
d.
price-fixing
e.
price skimming
163. Refer to Apple iPhone. When the iPhone 3G was released at half the cost of the current iPhone, it
appeared that Apple’s strategic focus had shifted from maximizing profits to gaining market share. Its
lowered price was consistent with the _____ pricing approach.
a.
price-bracketing
b.
penetration pricing
c.
price-lining
d.
price-fixing
e.
price skimming
164. Refer to Apple iPhone. Samsung recently introduced its Instinct cellular phone, apparently to compete
directly with the iPhone. If Samsung checked the price of the iPhone at the Apple Store and AT&T
locations and then set the price of the Instinct to match the iPhone’s price, it would be using a _____
pricing approach.
a.
bracketing
b.
penetration
c.
status quo
d.
retain maintenance
e.
skimming
165. Refer to Apple iPhone. Best Buy also carries the iPhone. If Best Buy, AT&T, and Apple meet to agree
on a price for the iPhone, it could be said that _____ has occurred.
a.
price fixing
b.
retail price maintenance
c.
price discrimination
d.
penetration pricing
e.
price skimming