Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Name:
Class:
Date:
chapter 18
Indicate whether the statement is true or false.
1. Prestige objectives reflect marketers’ recognition of the role of price in creating an overall image of the firm
and its product offerings.
a.
True
b.
False
2. Most states supplement federal legislation with their own unfair-trade laws, which require sellers to maintain
minimum prices for comparable merchandise.
a.
True
b.
False
3. The Robinson-Patman Act was intended primarily to save jobs.
a.
True
b.
False
4. A price is the exchange value of a good or service.
a.
True
b.
False
5. Many firms attempt to promote stable prices by meeting competitors’ prices and competing for market share
by focusing on the nonprice elements of the marketing mix.
a.
True
b.
False
6. Paul and Amanda have 6 season tickets to the St. Louis Cardinals - a major league baseball team. During the
season, they often offer their unused tickets to the highest bidder - especially when the Cardinals play the
Chicago Cubs. This practice, known as "scalping" is illegal in all US cities.
a.
True
b.
False
7. The only real difference among the multitude of cost-plus pricing techniques is the relative sophistication of
the costing procedures employed.
a.
True
b.
False
8. Defense based on cost differentials against charges of price discrimination under the Robinson-Patman Act
works only if the price differences exceed the cost differences resulting from selling to various classes of
buyers.
a.
True
b.
False
9. The price of products only includes the costs incurred by the manufacturer for procuring the raw material and
for processing the products.
a.
True
Name:
Class:
Date:
chapter 18
b.
False
10. A shortcoming of the breakeven model is that it assumes that per-unit variable costs change at different
levels of operation.
a.
True
b.
False
11. Purely cost-oriented approaches to pricing violate the marketing concept, so modifications that add demand
analysis to the pricing decision are required.
a.
True
b.
False
12. Pricing can be used to modify consumer behavior.
a.
True
b.
False
13. Profits typically are higher when an incremental-cost pricing approach is utilized.
a.
True
b.
False
14. Sales maximization can also result from nonprice factors such as service and quality.
a.
True
b.
False
15. The ticket reselling market is both highly fragmented and susceptible to fraud and distorted pricing.
a.
True
b.
False
16. The increased options available to shoppers combine to create a market characterized by demand elasticity.
a.
True
b.
False
17. The supply side of the pricing equation focuses on revenue curves.
a.
True
b.
False
18. Pricing decisions are influenced by a variety of legal constraints imposed by federal, state, and local
governments.
a.
True
b.
False
19. Demand curves must be based on marketing research estimates that may be less exact than cost figures.
a.
True
b.
False
Name:
Class:
Date:
chapter 18
20. Unfair-trade laws were intended to protect small specialty shops, such as dairy stores, from loss-leader
pricing tactics.
a.
True
b.
False
21. The Miller-Tydings Resale Price Maintenance Act (1937) exempted interstate fair-trade contracts from
compliance with antitrust requirements, thus freeing states to keep these laws on their books if they so desired.
a.
True
b.
False
22. Modified breakeven analysis forces the marketer to consider whether the consumer is likely to purchase the
number of units of a good or service required for achieving breakeven at a given price.
a.
True
b.
False
23. In an oligopolistic market, price cutting is likely to increase total industry revenues.
a.
True
b.
False
24. Fair-trade laws assert the manufacturer’s authority to protect its asset by requiring retailers to maintain a
minimum price.
a.
True
b.
False
25. The Anti-A&P Act was inspired by price competition triggered by the rise of grocery store chains.
a.
True
b.
False
26. The price elasticity of supply of a product is the percentage change in the quantity of a good or service
supplied divided by the percentage change in its price.
a.
True
b.
False
27. The two most common cost-oriented pricing procedures are the full-cost method and the incremental- cost
method.
a.
True
b.
False
28. For consumers to pay prices either above or below what they consider the going rate, they must be
convinced they are receiving fair value for their money.
a.
True
b.
False
29. Microeconomics suggests a way of determining prices that assumes a profit-maximization objective.
a.
True
Name:
Class:
Date:
chapter 18
b.
False
30. A profit-maximizing price rises to the point at which further increases will cause disproportionate decreases
in the number of units sold.
a.
True
b.
False
31. When most of a firm’s costs are variable over a wide range of outputs, the primary determinant of
profitability will be the revenue generated by sales.
a.
True
b.
False
32. Companies that adopt a volume objective continue to expand sales even when their total profits drop below
the minimum return acceptable to management.
a.
True
b.
False
33. One of the advantages of the full-cost pricing approach is that it takes into consideration the competition and
demand that exists for a product.
a.
True
b.
False
34. The basic breakeven model considers demand.
a.
True
b.
False
35. The challenge for those who compete on value is to convince customers that low-priced brands offer quality
comparable to that of a higher-priced product.
a.
True
b.
False
36. High-demand sporting or concert events have encountered an expensive, often illegal, form of pricing where
tickets are resold at a much higher price than what it was originally bought for. This practice is called ticket
scalping.
a.
True
b.
False
37. In the global marketplace, prices are directly affected by special types of taxes called tariffs.
a.
True
b.
False
38. A customary price represents an upper limit on the price of a product imposed by the government in order to
control the prices of essential products such as food items.
a.
True
b.
False
Name:
Class:
Date:
chapter 18
39. Prices of electronic equipment and automobiles tend to fluctuate far less than prices of crops such as
sugarcane and bananas.
a.
True
b.
False
40. Countries that export value- oriented products, rather than commodities, tend to enjoy more stable prices.
a.
True
b.
False
41. When a chain store sells certain products below cost to attract customers, it is practicing a loss-leader price
tactic.
a.
True
b.
False
42. Antitrust legislation has eliminated all monopolies including the temporary monopolies, such as those
created through patent protection.
a.
True
b.
False
43. Price setting is based on the marketer’s ability to strike a balance between desired profits, and the customer’s
perception of a product’s value.
a.
True
b.
False
44. Every “regulatory” price increase is a tax.
a.
True
b.
False
45. Cost-plus pricing is the least popular method of setting prices.
a.
True
b.
False
46. Basic so-called fighting brands are intended to capture market share from lower-priced competitors by
offering relatively high quality products at comparatively higher prices.
a.
True
b.
False
47. Prestige pricing establishes a relatively high price to develop and maintain an image of quality and
exclusiveness that appeals to status-conscious consumers.
a.
True
b.
False
48. In an oligopolistic market, a single seller controls the pricing decisions.
a.
True
b.
False
Name:
Class:
Date:
chapter 18
49. Countries that export international commodities, such as wood, chemicals, and agricultural crops, suffer
economically when their prices fluctuate.
a.
True
b.
False
50. Full-cost pricing allows the marketer to recover all costs plus the amount added as a profit margin.
a.
True
b.
False
51. In an oligopolistic market, high start-up costs form significant barriers to entry for new competitors.
a.
True
b.
False
52. All firms attempt to maximize profits.
a.
True
b.
False
53. The government prohibits regulated monopolies in markets in which competition would lead to an
uneconomical duplication of services.
a.
True
b.
False
54. Marginal revenue is the change in total revenue that results from selling an additional unit of output.
a.
True
b.
False
55. Traditional economic theory considers both costs and demand in determining an equilibrium price.
a.
True
b.
False
56. The breakeven point is the point at which total revenue equals total cost.
a.
True
b.
False
57. The price elasticity of demand (or elasticity of demand) is the percentage change in the quantity of a good or
service demanded divided by the percentage change in its price.
a.
True
b.
False
58. The PIMS project discovered a strong negative relationship between a firm’s product quality and its return
on investment.
a.
True
b.
False
Name:
Class:
Date:
chapter 18
59. Companies can avoid penalties under the Robinson-Patman Act as long as they can demonstrate that their
price discounts and promotional allowances restrict competition.
a.
True
b.
False
60. Managers often find it difficult to estimate demand at various price levels.
a.
True
b.
False
61. Firms with large shares accumulate greater operating experience and lower overall costs relative to
competitors with smaller market shares.
a.
True
b.
False
62. When discounts become normal elements of a competitive marketplace, other marketing mix elements gain
importance in purchase decisions.
a.
True
b.
False
63. When the elasticity of demand or supply is greater than 1.0, then that demand or supply is said to be
inelastic.
a.
True
b.
False
64. Manufacturers attempt to balance consumer expectations of customary prices with the realities of rising
costs by increasing overall product size.
a.
True
b.
False
65. Marketers determine prices in two basic ways: by applying the theoretical concepts of supply and demand
and by completing cost-oriented analyses.
a.
True
b.
False
66. Total revenue is determined by multiplying the product’s selling price and the number of units sold.
a.
True
b.
False
67. Lower off-season prices and higher peak-season prices for lodging at resorts illustrate the use of yield
management as a strategy to generate revenues for a largely fixed-cost industry.
a.
True
b.
False
68. Firms that use a volume objective to guide their pricing strategy believe that increased sales are less
important in the long-run competitive picture than immediate high profits.
Name:
Class:
Date:
chapter 18
a.
True
b.
False
69. The average total cost is the cost calculated by dividing the sum of the variable and fixed costs by the
number of units produced.
a.
True
b.
False
70. State fair-trade laws were made invalid by the enactment of the Consumer Goods Pricing Act of 1975.
a.
True
b.
False
71. The economic theory assumes that firms behave rationally which in turn results in an effort to maximize
gains and minimize losses.
a.
True
b.
False
72. The term “tariff” refers to the tax exemption granted to domestic producers in order to increase their
competitiveness in the international markets.
a.
True
b.
False
73. Breakeven analysis is an effective tool for marketers in assessing the sales required for covering costs and
achieving specified profit levels.
a.
True
b.
False
74. The basic breakeven model addresses the question of whether customers will actually purchase the product
at the specified price in the quantity required to break even or make a profit.
a.
True
b.
False
75. Economic theory attempts to derive correct equilibrium prices in the marketplace by comparing supply and
demand.
a.
True
b.
False
76. Pricing objectives tied directly to meeting prices charged by major competitors emphasize the price element
of the marketing mix and focus less strongly on nonprice variables.
a.
True
b.
False
77. A firm minimizes its profits when marginal costs equal marginal revenues.
a.
True
b.
False
Name:
Class:
Date:
chapter 18
78. Modified breakeven analysis combines the traditional breakeven analysis model with an evaluation of
advertising effectiveness to influence consumer purchases.
a.
True
b.
False
79. Overall organizational objectives and more specific marketing objectives guide the development of pricing
objectives, which in turn lead to the development and implementation of more specific pricing policies and
procedures.
a.
True
b.
False
80. Tariffs make it possible for firms to protect their local markets while still setting prices on domestically
produced goods well above world market levels.
a.
True
b.
False
81. Full-cost pricing allocates fixed costs that can be directly attributed to the production of the specific priced
item.
a.
True
b.
False
82. Modern accounting procedures provide managers with a clear understanding of cost structures, so managers
can readily comprehend the supply side of the pricing equation.
a.
True
b.
False
83. A value pricing strategy works best for relatively high-priced goods and services.
a.
True
b.
False
84. If consumers can easily find close substitutes for a good or service, the product’s demand tends to be
inelastic.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
85. Which of the following actions is most likely to be taken by a company in order to implement the value
pricing objective?
a.
Distributing free samples of the product to create awareness about the product among the consumers
b.
Convincing consumers that the quality of their lower-priced product is the same as that of a
comparatively higher-priced product sold by a competitor
c.
Convincing consumers of the prestige associated with the product
d.
Distributing free gifts along with the product during its introductory stage
Name:
Class:
Date:
chapter 18
86. You are the marketing manager for a state park conference center. Large conferences are booked more than
one year in advance, so you can put together a calendar of scheduled events. Weekends are especially busy
times. You have been charged with finding online ways that you can fill the gaps in reservations.
Required:
How would you use a recently created online method to increase business during known slow visitor times?
a.
design an attractive website that lists the recreational features of the park's facilities
b.
host an online auction to negotiate prices for weekday stays
c.
send an e-mail offering discount prices to conference attendees
d.
write a blog that posts interviews with satisfied previous visitors
e.
create a short humorous online video and hope it goes viral
87. Your company specializes in manufacturing oversized spa-type bathtubs for the residential market. You
have long been a proponent of using a modified breakeven analysis. You think that this approach is essential to
your company's success because you operate in the luxury-item marketplace.
Required:
Which of the following situations is the result of a trend that would prompt you to use a modified breakeven
analysis rather than the traditional model?
a.
You find that consumer demand is affected by environmentalists' cautions about water usage.
b.
You find that the price of advertising has been affected by the move to online publishing.
c.
Your employees are due for a significant salary and benefits increase to match those offered by your
competitors.
d.
The landlord of your manufacturing facility has announced a sizeable rent increase to cover
earthquake readiness.
e.
You have had an increase in the cost of raw materials, which are based on petroleum-derived
products.
88. The Robinson-Patman Act specifically prohibits:
a.
imposing taxes on the products that are being exported to other countries.
b.
earning excess profits, that is, more than the average for an industry.
c.
price discrimination in sales to wholesalers, retailers, and other producers.
d.
charging the same price to everyone for everything you sell.
89. The pricing technique used to determine the number of products that must be sold at a specified price to
generate enough revenue to cover total cost is known as _____ analysis.
a.
cost-plus
b.
marginal
c.
breakeven
d.
incremental-cost
90. Which of the following terms represents the measure of responsiveness of purchasers and suppliers to a
change in price?
Name:
Class:
Date:
chapter 18
a.
Selectivity
b.
Captivity
c.
Elasticity
d.
Sensitivity
91. A five-pound bag of roasted peanuts sells for $8, and the average variable cost is $4 per bag. If the total
fixed cost for the roasted peanuts is $80,000, the breakeven point in bags is:
a.
20,000
b.
40,000
c.
80,000
d.
120,000
92. A pricing strategy that allows marketers to vary prices based on such factors as demand, even though the
cost of providing those goods or services remains the same is called
a.
yield management
b.
break-even point
c.
supply analysis
d.
cost-plus pricing
93. Which of the following is a pricing technique that is used to evaluate consumer demand by comparing the
number of products that must be sold at a variety of prices to cover total cost with estimates of expected sales at
the various prices?
a.
Modified breakeven analysis
b.
Cost-plus analysis
c.
Incremental-cost analysis
d.
Segmentation analysis
94. Jennifer is looking for a wedding present for her fiance and is considering buying him a watch. She likes
luxury items and is willing to spend between $4,000 and $10,000 on the gift. She visits several jewelry stores
and realizes that the prices are the same for Rolex and Philippe Patek brand watches and each store tells her
these brands are never discounted. What type of pricing objective is utilized by Rolex and Philippe Patek?
a.
prestige
b.
profit
c.
volume
d.
meeting competitors
95. As the marketing and sales manager, you are in charge of setting the selling prices of prize-winning music
boxes with changeable songs. After you explained two cost-plus approaches to price setting, the CEO chose the
straightforward approach of full-cost pricing. The next day, you received an unexpected order for 10,000 units
from a Swiss contact with a tight deadline.
Required:
What information do you need immediately to arrive at a selling price that you can justify to the CEO?
Name:
Class:
Date:
chapter 18
a.
value of resources consumed in the production of the music boxes
b.
overhead expenses, profit margin, and direct cost per music box
c.
fixed costs of production, variable costs, and revenue
d.
manufacturing capacity and customer's price point of willingness to pay
e.
acceptable loss-leader pricing, prescribed rate of return, and financing
96. Which of the following is an example of a volume pricing objective?
a.
A value-pricing objective
b.
A profit maximization objective
c.
A market-share objective
d.
A target-return objective
97. Which of the following is also known as the Anti-A&P Act?
a.
The Clayton Act of 1914
b.
The Robinson-Patman Act of 1936
c.
The Miller-Tydings Resale Price Maintenance Act of 1937
d.
The Consumer Goods Pricing Act of 1975
98. A demand is said to be inelastic when the:
a.
demand curve and the supply curve do not intersect.
b.
total cost and total revenue are equal at all levels of demand.
c.
elasticity of demand is less than 1.
d.
elasticity of demand is greater than 1.
99. Which of the following can be categorized as a tariff?
a.
A tax exemption provided to domestic firms that import goods from foreign countries.
b.
A tax levied on domestic exporters to maintain product quality.
c.
A tax levied on foreign producers to prevent dumping of goods.
d.
A tax exemption on agricultural produce to help domestic farmers.
100. _____ is a pricing strategy that allows marketers to vary prices based on such factors as demand, even
though the cost of providing those goods or services remains the same.
a.
Yield management
b.
Modified breakeven technique
c.
Marginal cost pricing
d.
Incremental revenue pricing
101. The Swim Store is a manufacturer and distributor of swim-related products for competitive swimming
athletes and also offer products for lifeguards. They are expanding their reach to Europe and believe their line
of products will be well received however, due to the adoption of the Euro single currency system, competition
is strong. Which pricing objective would be most appropriate for the company as they expand to the European
Union markets?
Name:
Class:
Date:
chapter 18
a.
meeting competition
b.
profitability
c.
prestige
d.
stability
102. Analysis has shown that ingredients account for less than 5 percent of a perfume’s cost. So if a perfume
costs $135 or more per ounce, it reflects the marketer’s adoption of a pricing objective that focuses on:
a.
expanding market share.
b.
creating image or prestige.
c.
meeting competitors’ prices.
d.
maximizing sales.
103. A company incurs fixed costs of $35,000 and average variable costs of $7 per item. This company sells
10,000 units and just breaks even. The unit selling price for the product is:
a.
$10.00
b.
$7.35
c.
$17.00
d.
$10.50
104. You are the head of pricing strategy for your firm. You are very excited about a new point-of-sale system
that has just been installed in all your firm’s retail outlets. The system is a state-of-the-art real-time information
system that captures the details of every sale made in your retail outlets. You have up-to-the-minute data-on-
demand elements for your entire product line.
Required:
In using your new data-on-demand elements to make pricing decisions, how would you handle the limitations
of this approach?
a.
Post charts of predicted future buying trends in the sales department as motivational incentives.
b.
Tell decision-making executives that you cannot produce an accurate estimation of current trends.
c.
Be prepared for unpredictable changes in demand because actual purchase data do not allow
estimation of future trends.
d.
Change the way that the firm's accounts receivable employees record information.
e.
Change the way that the firm's accounts payable employees record information.
105. According to the PIMS research, firms with market shares above 40% show an average _____ return on
investment.
a.
55%
b.
32%
c.
14%
d.
60%
106. The Acme Flashlight Company breaks even at 20,000 flashlights at $6 each, with the average variable cost
per flashlight of $4. The amount of its fixed costs is:
Name:
Class:
Date:
chapter 18
a.
$20,000
b.
$40,000
c.
$60,000
d.
$80,000
107. In international marketing, which of the following pricing objectives is used when products are associated
with intangible benefits, such as high quality, exclusiveness, or attractive design?
a.
Profitability objective
b.
Volume objective
c.
Meeting-competition objective
d.
Prestige objective
108. Which of the following exempted interstate fair-trade contracts from compliance with antitrust
requirements, thus freeing states to keep these laws on their books if they so desired?
a.
The Clayton Act of 1914
b.
The Robinson-Patman Act of 1936
c.
The Miller-Tydings Resale Price Maintenance Act of 1937
d.
The Consumer Goods Pricing Act of 1975
109. The marginal revenue and marginal cost at various levels of output is listed below:
Output
Marginal Revenue
($)
Marginal Cost
($)
100
16
14
150
15
12
200
12
10
250
9
9
At what level of output is profit maximized?
a.
100 units
b.
150 units
c.
200 units
d.
250 units
110. The PIMS project revealed that the two most important factors influencing profitability were:
a.
sales cost and market demand.
b.
product quality and market share.
c.
profit margin and product price.
d.
product price and competition.
111. A 5 percent increase in the price of milk that results in a 2 percent decrease in the quantity of milk
demanded yields a price elasticity of demand for milk of:
a.
0.5.
b.
0.4.
c.
1.0.
Name:
Class:
Date:
chapter 18
d.
1.4.
112. Short-run or long-run pricing objectives of achieving a specified return on either sales or investment are
known as _____ objectives.
a.
prestige
b.
volume
c.
target-return
d.
market-share
113. Sunshine Cereals has been in the market for seven decades. They attribute their success to maintaining an
almost stable product price in the face of inflation as well as stiff competition from rival firms. The
management at Sunshine Cereals knows that any substantial increase in product price would translate into loss
of sales as consumers are used to paying a specific price for their cereals. This specific price is an example of
(a):
a.
customary price.
b.
value price.
c.
full-cost price.
d.
incremental-cost price.
114. Which of the following is the purpose of adopting a meeting-competition pricing objective?
a.
Market share
b.
Sales maximization
c.
Profit maximization
d.
Value pricing
115. Which of the following is true of fair-trade laws?
a.
They allow manufacturers to stipulate minimum retail prices for their products.
b.
They allow retailers to offer discount schemes on specified products.
c.
They require sellers to maintain maximum prices for comparable merchandise.
d.
They assert that a product’s image is a property right of the retailer.
116. Stefan has worked in the restaurant industry for over 20 years and recently signed a lease and plans to open
his own restaurant in the next several months. He's working with his chef and bar manager to determine menu
items and pricing. Of course, his pricing must be competitive as well as enable the business to cover costs and
earn a profit. He decides that he will utilize a 60% mark-up on costs and informs the chef and bar manager to
utilize this basis when determining prices for menu items. What method of pricing is Stefan utilizing?
a.
cost-plus pricing
b.
full-cost pricing
c.
incremental-cost pricing
d.
value-add pricing
117. A profit-maximizing price rises to the point at which further:
a.
increases will cause proportionate decreases in the number of units sold.
Name:
Class:
Date:
chapter 18
b.
decreases will cause disproportionate decreases in the number of units sold.
c.
increases will cause disproportionate decreases in the number of units sold.
d.
increases will cause disproportionate increases in the number of units sold.
118. Firms that adopt volume objectives believe that:
a.
companies should focus on maximizing profits rather than maximizing sales.
b.
companies should continue to expand sales as long as their total profits do not drop below a specified
minimum return.
c.
companies should focus on the image and prestige associated with their products.
d.
companies should offer huge discounts even at the cost of running into losses with their products.
119. Under which of the following conditions is a product most likely to have an elastic demand?
a.
Consumers can easily find close substitutes for the product.
b.
The marginal cost of producing the product is equal to its marginal revenue.
c.
A large portion of a person’s budget is spent on the product.
d.
The fixed costs associated with producing the product are higher than the variable costs associated
with it.
120. Yield management is strategic control of inventory. It maximizes revenue or profits from fixed perishable
resources.
What are the three rights of yield management?
a.
right revenue at the right point of sale for the right items
b.
right features at the right time for the right cost
c.
right customer at the right time for the right price
d.
right estimated price at the right location for the right time
e.
right person at the right location for the right cost
121. Which of the following is true of pure competition?
a.
It is a market structure with very few sellers.
b.
It presupposes a market condition where start-up costs are high for sellers.
c.
It is a market structure with very few buyers.
d.
It presupposes a market condition where sellers produce homogenous products.
122. A cost that changes with the level of production is called a(n) _____ cost.
a.
variable
b.
fixed
c.
average total
d.
marginal
123. You are the marketing manager for a multi-state auto dealership in the Midwest. It is that time of year when
your fleet of autos goes through major model year changes. You are putting the final touches on your pricing
strategy to facilitate getting your inventory of autos low enough to make room for the new models.
Name:
Class:
Date:
chapter 18
What is the practical problem involved in using your current sales and commission data to make pricing
decisions?What pricing strategy solution would best address that problem?
a.
Problem: You are committed to the idea of maximizing profits for last year's models. Solution:
Increase the price of last year's models, emphasizing their future unavailability.
b.
Problem: You are committed to the idea of maximizing profits for next year's models. Solution: Keep
the prices of last year's model the same, so that the new model's prices look more desirable.
c.
Problem: Your current sales and commission data are hard to quantify to formulate a pricing strategy.
Solution: When a potential customer appears interested, formulate an individualized price for that
person.
d.
Problem: Your commissions add to the cost of the cars, decreasing their attractiveness as bargains.
Solution: Eliminate your commissions to reduce inventory.
e.
Problem: You have a clearer knowledge of the supply side of the pricing equation than you do of the
demand side. Solution: Periodic discounting to keep pace with demand.
124. A local eye doctor is seeking to expand its practice and entice new customers to visit for their annual eye
exam and purchase glasses or contacts if prescribed. The office is offering 2 pairs of glasses for $69 with the
goal of attracting a large number of new patients. What type of pricing objective is utilized by the office?
a.
volume
b.
profitability
c.
prestige
d.
meeting competition
125. A firm maximizes its profits when:
a.
the marginal revenue curve runs much below the marginal cost curve.
b.
marginal costs are more than marginal revenues.
c.
the marginal revenue curve runs parallel to the marginal cost curve.
d.
marginal costs equal marginal revenues.
126. You are a brand manager for a large chain of grocery stores. You have been working overtime for the last
two weeks to prepare for your pricing objectives meeting with the head of sales and marketing. You walk into
the meeting with a high degree of confidence in the strategy that you have for setting the pricing objectives for
your brand category for the upcoming year. You are speechless when the marketing head tells you that no
changes in the pricing objectives will be made for your brand category. He says he believes it is most prudent to
leave the existing pricing objectives as they are for the upcoming year.
Required:
Which of the following statements is the best explanation for the marketing head’s decision to leave the existing
pricing objectives in place with no change?
a.
A status quo pricing objective can reduce a firm’s risks by helping to stabilize demand for its
products.
b.
The company intends to focus on product quality instead of pricing to win market share.
c.
The company expects its market share to increase if it leaves its pricing objectives the same.
d.
Profit maximization is not an objective in the upcoming year.
Name:
Class:
Date:
chapter 18
e.
The company is not concerned about cash flow.
127. Which of the following is true of price determination in economic theory?
a.
It suggests a way of determining prices that assumes a sales-maximization objective.
b.
It attempts to derive correct equilibrium prices in the marketplace by comparing supply and demand.
c.
It attempts to maximize the market share of an organization.
d.
It suggests a way of determining prices that assumes a market-share expansion objective.
128. A major assumption of the economic theory is that, firms will focus on:
a.
minimizing the inventory turnover ratio.
b.
maximizing gains and minimizing losses.
c.
providing a minimum return on investment.
d.
using selective distribution strategies rather than intensive distribution strategies.
129. Which of the following pricing objectives reflects marketers’ recognition of the role of price in creating an
overall image of the firm and its product offerings?
a.
A profitability objective
b.
A volume objective
c.
A meeting competition objective
d.
A prestige objective
130. When most of a firm's costs are fixed over a wide range of outputs, the primary determinant of profitability
will be the:
a.
control the firm can exercise over costs.
b.
amount of variable cost that can be recovered with the sale of each unit.
c.
amount of revenue generated by sales.
d.
marginal cost incurred in the production of a single unit.
131. A cost that remains stable at any production level within a certain range is called a(n) _____ cost.
a.
variable
b.
fixed
c.
average total
d.
marginal
132. Pricing objectives that seek sales maximization or achievement of a stated market share are examples of
_____ objectives.
a.
profitability
b.
volume
c.
meeting competition
d.
prestige
133. A local apparel shop sets prices by adding a 45 percent markup to the invoice price charged by the supplier.
Name:
Class:
Date:
chapter 18
This method of pricing is known as _____ pricing.
a.
cost-plus
b.
breakeven
c.
full-cost
d.
incremental-cost
134. Brandon recently completed law school, passed the bar exam and began working for a prestigious law firm
in Dallas, TX. The firm has a strict dress code and Brandon is required to wear business suits, dress shirts, ties,
and dress shoes. He is investing in a new wardrobe and visited Men's Discount Warehouse to purchase new
clothes. He shared his situation with Tim, his sales representative and Tim told him that if he bought 2 suits, he
would receive 2 dress shirts, 3 ties and 2 pairs of socks for free. Which of the following statements is TRUE
regarding this example?
a.
Promotions such as this are legal when differences in price reflect cost differentials
b.
The Robinson-Patman Act prohibits this activity as it would be considered price discrimination
c.
Retailers are restricted from using bundled pricing
d.
This practice would likely drive competitors out of business
135. _____ cost is the change in total cost that results from producing an additional unit of output.
a.
Variable
b.
Fixed
c.
Additional
d.
Marginal
136. Which of the following is a practical problem involved in applying price theory concepts to actual pricing
decisions?
a.
All firms attempt to maximize profits.
b.
It is difficult to estimate demand curves.
c.
It is difficult to comprehend the supply side of the pricing equation.
d.
Supply curves must be based on marketing estimates.
137. You are reevaluating the pricing policy of Fruit World, a United States restaurant supplier which imports exotic
produce from Mexico and Spain. Because of increased competition, you want to promise customers that your prices are
the lowest on the market. Which of the following approaches would most likely enable you to fulfill this promise with
minimal impact to Fruit World's profits?
a.
Increase your imports from Spain and reduce those from Mexico.
b.
Increase your imports from Mexico and reduce those from Spain.
c.
Drop prices equally on all your imports from both countries.
d.
Eliminate imports from countries that belong to NAFTA.
e.
Improve your overseas supply chain serving both countries.
138. State laws requiring sellers to maintain minimum prices for comparable merchandise are called _____
laws.
a.
tax-exemption
Name:
Class:
Date:
chapter 18
b.
unfair-trade
c.
price-discrimination
d.
loss-leader
139. Increased options available to shoppers combine to create a market characterized by _____ elasticity.
a.
supply
b.
linear
c.
demand
d.
constant
140. Which of the following is true of the Robinson-Patman Act?
a.
It prohibited imposing taxes on the products that are being exported to other countries.
b.
It was intended primarily to create more jobs in grocery chain stores.
c.
It prohibited selling at an unreasonably low price to eliminate competition.
d.
It applies only to price discrimination between geographic areas, injuring local sellers.
141. Which of the following statements is TRUE regarding issues in pricing?
a.
it can be difficult to estimate demand curves
b.
marketing research can provide accurate estimates of demand curves
c.
most organizations price in such a way to maximize profitability
d.
pricing managers have difficulty obtaining accurate cost information
142. Danielle and her roommate Sile are comparing the charges on their telephone bills. Both women get their
Internet service bundled with their mobile phone charges. Danielle has a smartphone and Sile has a device with
only basic features, so Danielle pays more for data downloading. Both women were surprised at the significant
amount they are each charged annually for "regulatory cost recovery fees."
Required:
What service is included in "regulatory cost recovery fees"?
a.
Improvement to increase the speed of Internet downloading is included.
b.
Erection of more rural cell phone relay towers is included.
c.
Outreach to other telephone providers to share facilities is included.
d.
No service is included; fees are additional telephone company revenue.
e.
Collaboration with federal, state, and local regulators is included.
143. Which of the following is a market structure in which relatively few sellers compete and where high start-
up costs form barriers to keep out new competitors?
a.
Pure competition
b.
Discriminatory competition
c.
Oligopoly
d.
Monopoly
144. Which of the following is a market structure in which only one seller of a product exists and for which
Name:
Class:
Date:
chapter 18
there are no close substitutes?
a.
Pure competition
b.
Monopolistic competition
c.
Oligopoly
d.
Monopoly
145. Which of the following is a pricing method that attempts to use only those costs that are directly
attributable to a specific output in setting prices?
a.
Cost-plus
b.
Full-cost
c.
Incremental-cost
d.
Breakeven
146. In which of the following market structures the entry of new firms into the industry is regulated by the
government?
a.
Pure competition
b.
Monopolistic competition
c.
Oligopoly
d.
Monopoly
147. A schedule of the amounts of a firm’s product that consumers will purchase at different prices during a
specified time period is referred to as _____.
a.
demand
b.
supply
c.
surplus
d.
ration
148. Volume-related pricing objective with the goal of controlling a portion of the market for a firm’s product is
known as a ______ objective.
a.
prestige
b.
market-share
c.
target-return
d.
meeting competition
149. When a state decides to double the tax on alcoholic beverages and consequently, increases their market
price, the state is aiming at:
a.
market suppression.
b.
profit maximization.
c.
cost recovery.
d.
market domination.
150. Marco decided to write down all his expenses for one day. He had a lot of errands: he filled his car with
Name:
Class:
Date:
chapter 18
gas, and he did his grocery shopping for the week, including items to host a TGIF party with beer, wine, and
soda. Even though Marco is trying to cut down on his smoking, he did buy a carton of cigarettes. Every time he
paid a tax, he recorded it, so his notes include both the words "sales tax" and "excise tax."
Required:
What is the difference between excise taxes and sales taxes?
a.
Sales taxes are levied only on certain items in specific stores.
b.
Excise taxes are calculated as a percentage of the base price.
c.
Excise taxes can limit sales and reduce product demand.
d.
Sales taxes are included in the base price of products.
e.
Sales taxes and excise taxes are terms for the same levy.
151. _____ maximization is identified as the point at which the additional revenue gained by increasing the price
of a product equals the increase in total costs.
a.
Profit
b.
Volume
c.
Sales
d.
Market share
152. You are a staunch environmentalist. When hybrid vehicles were introduced, the supply was very limited.
Buyers were paying a premium over the listed manufacturer's suggested retail price (MSRP). At that time, your
budget could not stretch that far, but you still wanted to own a car that does not depend on petroleum products.
By waiting, you find that the automobile dealers have announced that their shipments of new hybrid cars have
increased by 10 percent. Meanwhile, the average price of regular gasoline rose from $3.30 to $3.63 per gallon.
Required:
If the price elasticity of demand for new hybrid cars is 1.25 and for gasoline is 1.0, what was the effect on the
prices of a new hybrid car and on gasoline?
a.
The price of the hybrid car fell by 2.5 percent and the price of gasoline increased by 1.1 percent.
b.
The price of the hybrid car rose by 12.5 percent and the price of gasoline increased by 11.1 percent.
c.
The price of the hybrid car fell by 10 percent as did the price of gasoline.
d.
The price of the hybrid car rose by 8 percent, and the price of gasoline increased by 10 percent.
e.
The price of the hybrid car fell by 8 percent, and the price of gasoline increased by 10 percent.
153. Which of the following is a market structure characterized by homogeneous products in which there are so
many buyers and sellers that none has a significant influence on price?
a.
Pure competition
b.
Monopolistic competition
c.
Monopoly
d.
Oligopoly
154. The management at Fries, a potato chips manufacturer, is calculating their quarterly profits. According to
the official data, the firm has sold 200,000 units of their chips priced at $2 per unit for the quarter. The firm had
spent $100,000 on production, processing and other costs. The profit made by Fries for the quarter is:
Name:
Class:
Date:
chapter 18
a.
$400,000.
b.
$300,000.
c.
$200,000.
d.
$100,000.
155. Mignon d’Armitage manufactures jewelry. This firm is planning to introduce a new necklace and is trying
to determine how many units it must sell in order to break even. Fixed costs are $100,000 and variable costs for
each unit will be $20. At the price of $45 each, the number of units that must be sold in order to break even is:
a.
2,500.
b.
4,000.
c.
5,000.
d.
7,500.
156. A schedule of the amounts of a good or service that will be offered for sale at different prices during a
specified period is referred to as _____.
a.
demand
b.
supply
c.
surplus
d.
ration
157. A 5 percent increase in the price of corn flour that results in a 15 percent increase in the quantity supplied
yields a price elasticity of supply for corn flour of:
a.
2.0.
b.
2.5.
c.
3.0.
d.
3.5.
158. The demand side of the pricing equation focuses on:
a.
revenue curves.
b.
cost curves.
c.
price curves.
d.
value curves.
159. Disney Cruise Line offers exceptional experiences for their guests and a variety of destinations around the
world. They attempt to price their offerings competitively and profitability by varying the listed price of
accommodations on a cruise such that different weeks of the year may be less expensive than others. For
example, during hurricane season for Atlantic Ocean cruises, prices will be lower than peak times such as
Christmas and New Years cruises. Which pricing-related strategy is Disney Cruise Line utilizing?
a.
yield management
b.
demand forecasting
c.
supply analysis
d.
modified breakeven analysis
Name:
Class:
Date:
chapter 18
160. Statutes enacted in most states that once permitted manufacturers to stipulate a minimum retail price for
their product are called _____.
a.
fair-trade laws
b.
tax-exemption laws
c.
price discrimination laws
d.
loss-leader laws
161. Which of the following products would most likely have an inelastic demand curve?
a.
HP genuine ink for an HP printer
b.
paper towels
c.
photocopier paper
d.
pencils
162. Which of the following exemplifies a yield management pricing strategy?
a.
Lowering cab rental rates on weekends compared to weekdays
b.
Introducing a pack of oatmeal breakfast cereals at a price of $3 which actually cost $5
c.
Charging an exorbitant price for a designer outfit to signal quality and exclusiveness
d.
Selling a brand of soap at 20 percent discount for a limited time period during its introductory stage
163. Modified breakeven analysis combines the traditional breakeven analysis model with an evaluation of:
a.
consumer demand.
b.
marginal cost curves.
c.
supply cost.
d.
target return objectives.
164. Pricing objectives that focus on attaining a target return on investment are examples of _____ objectives.
a.
profitability
b.
volume
c.
not-for-profit
d.
prestige
165. In the context of pricing objectives, which of the following is the purpose of adopting a profitability
objective?
a.
Market share
b.
Image
c.
Sales maximization
d.
Target return
166. The A.G. Harding company has been charged with price discrimination under the federal Robinson-Patman
Act. Which of the following would be the best defense against the charge?
a.
The price differential is justified as they do not exceed the cost differences resulting from selling to
various classes of buyers.
Name:
Class:
Date:
chapter 18
b.
The price differential is justified as it reflects the efficiency of its sales personnel.
c.
The price differential is justified because the company is a leader in the specific product market.
d.
The price differential is justified as the company’s products comply with the ISO standards.
167. You own an enchanting Victorian bed-and-breakfast facility in Ashland, Oregon, home of the annual
Oregon Shakespeare Festival. The symbol for your in-season rates is $$$$, when the Bard's plays are being
enacted on the stages. In season, you have a two-night minimum-stay requirement. When the festival season has
ended, however, you have trouble filling your rooms.
Using the tool of yield management, what action will you take to maximize profits?
a.
close down your facility during the off season to minimize expenses
b.
connect with other hotel/motel owners and set a minimum rental limit
c.
lower your rates to $$ and remove the minimum-stay requirement
d.
keep your rates and minimum stay the same and increase advertising
e.
consider the off season as vacation time to renew your energy
168. You are used to working with the usual pricing objectives for domestic health insurance organizations.
Finding that work no longer challenging after ten years, you have moved to the marketing department of the
international headquarters of a travelers' health insurer.
Which new objective joins the traditional objectives for your new job to set prices in global marketing?
a.
profitability of the premiums charged to customers
b.
volume of customers who purchase travelers’ health insurance
c.
price stability worldwide for every traveler
d.
meeting competition from other travelers' health insurers
e.
prestige of offering the best coverage with the access to the best healthcare options
169. The most popular method of pricing is _____ pricing.
a.
cost-plus
b.
breakeven
c.
incremental-cost
d.
full-cost
170. Firms who compete internationally face complex decisions regarding pricing decisions. Which method of
pricing might be most appropriate for companies who have a reputation as a price leader?
a.
profitability-based pricing
b.
meeting competitor pricing
c.
prestige pricing
d.
price stability
171. Demand for the hiking sandals marketed by the SoftShoe Company is highly elastic. As a pricing strategy consultant,
you have been hired to help the firm reduce this elasticity. Choose the recommendation you would be least likely to make.
a.
Introduce a unique sandal that is custom-made for hikers with significant foot problems, like deformed toes or
large bunions.
Name:
Class:
Date:
chapter 18
b.
Promise to undercut the price of any comparable brand.
c.
Market the sandal as a necessity for hikers.
d.
Market the sandal as a prestigious luxury for hikers.
e.
Increase the sandal's price.
172. The practice of adding a percentage of specified dollar amount—or markup—to the base cost of a product
to cover unassigned costs and to provide a profit is called _____ pricing.
a.
full-cost
b.
breakeven
c.
incremental-cost
d.
cost-plus
173. You begin every work day by stopping by the local premium coffee shop for a latte. They recognize you
when you come in and just hand you your regular order. Recently, a number of events happened at the same
time: you got a promotion with a higher salary; your regular coffee shop increased its prices; and a competitor
moved into the same shopping center, offering lower prices.
Required:
During your vacation, you have the luxury of time to reflect on your workday pattern of coffee consumption.
Looked at from a marketing perspective, which action could you choose to show that your demand is more
elastic?
a.
spending some of your higher income after the promotion
b.
demonstrating that you are a loyal customer of your current coffee shop
c.
asking for a good-customer discount from your regular place
d.
discovering that you enjoy the taste of the competitor's coffee
e.
returning to the comfort of your established routine
174. The breakeven point is the point at which:
a.
revenue from sales equals the variable cost of the product.
b.
the supply curve intersects the demand curve.
c.
total revenue from sales equals total cost.
d.
marginal cost runs above the marginal revenue curve.
175. Jim is the sales manager for a pharmaceutical firm. His boss has decided that Jim's team will need to earn their
annual bonuses by achieving a 10 percent return on the company's investment in a blockbuster cold remedy. During a
department meeting, Jim explains this target return in terms of the firm's overall pricing objectives. What is he most likely
to say?
a.
Target return is a way to ensure cost recovery.
b.
Target return enables the firm to achieve competition objectives.
c.
Target return enables the firm to achieve profitability objectives.
d.
Target return is effective as an evaluation tool but is not intended to achieve pricing objectives.
e.
Target return is a mathematical relationship, not a pricing tool.
176. You've attempted to maximize profits on sales of your bakery's gluten-free bread by taking a number of steps: for
Name:
Class:
Date:
chapter 18
example, by responding quickly to competitors' discounts, setting target return objectives, and marketing the product as a
necessity for people who are allergic to wheat. Unfortunately, profits still haven't reached your goals. You hope to explain
the disappointing results to your partners in a way that won't reflect poorly on your marketing judgment. Which of the
following explanations do you choose?
a.
The cost structure of the business is unclear.
b.
The demand curve for the product is unclear.
c.
The market for gluten-free bread -- people with wheat allergies -- is much smaller than you projected.
d.
Your advertising budget is inadequate.
e.
The price of your brand is too high.
177. Which of the following market structures involves a heterogeneous product and product differentiation
among competing suppliers, allowing the marketer some degree of control over prices?
a.
Pure competition
b.
Monopolistic competition
c.
Complementary monopoly
d.
Monopoly
178. In which of the following types of market structures would a producer have the least amount of influence in
setting prices?
a.
Pure competition
b.
Monopolistic competition
c.
Oligopoly
d.
Monopoly
179. Prestige pricing objectives emphasize:
a.
quality and exclusivity.
b.
revenue maximization.
c.
cost minimization.
d.
sales maximization.
180. Customary prices are:
a.
prices offered at the wholesale level as an incentive to increase product sales.
b.
retail prices consumers expect as a result of tradition and social habit.
c.
prices of products adjusted on the basis of the geographic locations of retail outlets.
d.
prices designed to constrain the amount of products sold to a level desired by the government.
181. A pricing strategy that emphasizes benefits of a product in comparison to the price and quality levels of
competing offerings is called _____ pricing.
a.
incremental-cost
b.
full-cost
c.
cost-plus
d.
value
Name:
Class:
Date:
chapter 18
182. You are asked by a non-marketing executive of your hip-hop music company to clarify some financial
language she heard at a recent annual presentation to investors. She asks you to give her a simple one-sentence
definition of "breakeven analysis."
Required:
Which of the following definitions meets her request for a simple one-sentence definition of "breakeven
analysis"?"
a.
"We have been cutting records for years, so our customers are used to paying a certain amount for
our albums. We keep our price constant to get repeat business."
b.
"We first do our research to find out what price our competitors are selling their records for. Then we
use that number to figure out how many records we need to cut to make a larger profit than our
competitors."
c.
"We first figure out the number of records we need to sell at a set price minus records returned for
refunds. That amount of money must be enough to cover the total costs of our producing the
records."
d.
"We use all our information from the previous year's sales, then we add 10 percent to the production
and 10 percent to the price."
e.
"We want to make sure that we sell all the albums that we produce, so we start out at a full price, and
make discount adjustments along the way."
183. When the elasticity of demand or supply is greater than 1.0, that demand or supply is said to be:
a.
elastic.
b.
stagnant.
c.
marginal.
d.
inelastic.
184. Which of the following is employed by theatrical productions when they charge higher prices for their
weekend shows than for the shows on weekdays even though the cost of producing the show remains the same
on all days?
a.
Modified breakeven analysis
b.
Yield management
c.
Incremental pricing
d.
Marginal pricing
185. Which of the following market structure is characterized by the non-existence of direct competitors?
a.
Pure competition
b.
Monopolistic competition
c.
Oligopoly
d.
Monopoly
186. After years of using full-cost pricing in a niche market for luxury watches, you find your competition has
slowly increased its market share each year with discounted prices. Focus groups have confirmed that the image
of your watches is still one of success and prestige, but more people are willing to consider substitutes.
Incremental cost-pricing could enable you to increase profits and unsettle your competitor's complacency. You
Name:
Class:
Date:
chapter 18
know that changing to incremental-cost pricing does have a significant downside problem. But you are also
aware that you can prevent that from happening.
What is the downside problem and which solution can you take to prevent its happening?
a.
downside is running out of product. solution is to ramp up your production capacity to meet the
demand of customers wanting lower prices
b.
downside is lack of audience awareness. solution is to create high-energy ads to appeal to young
customers
c.
downside is the tax consequences. solution is to tell the CEO that a change in your pricing strategy
could lead to an IRS audit
d.
downside is that the whole market could change. solution is to accept the fact that the wholesale and
retail prices of used watches could drop markedly
e.
downside is losing your niche market. solution is to take solid measures to isolate your markets for
lower-priced watches from your higher-priced models
187. When New Orleans’ Holy Cross School organizes a $500-per-person concert to raise funds for the
operation of the school, their organizational goal is to:
a.
maximize their profits.
b.
implement value pricing.
c.
suppress the market.
d.
provide market incentives.
188. A product is priced to sell for $12 with average variable costs of $8. The company expects to earn a profit
of $400,000 with its total fixed costs of $120,000. The minimum number of units that must be sold in order to
reach this target return is:
a.
400,000
b.
130,000
c.
120,000
d.
80,000
189. Which of the following is a limitation of breakeven analysis?
a.
consumer demand for products or services is not considered
b.
the analysis fails to separate fixed costs from variable costs
c.
the calculations assume that per-unit variable costs will change as different amounts are produced
d.
it is difficult to understand and apply
190. The _____ of demand is the percentage change in the quantity of a good or service demanded divided by
the percentage change in its price.
a.
volume elasticity
b.
competition sensitivity
c.
price elasticity
d.
volume sensitivity
Name:
Class:
Date:
chapter 18
191. Which of the following is TRUE regarding the concept of elasticity in pricing strategy?
a.
If the elasticity of demand is greater than 1.0, that demand is said to be elastic
b.
If the elasticity of supply is greater than 1.0, that demand is said to be inelastic
c.
If the elasticity of demand is less than 1.0, that demand is said to be elastic
d.
If the elasticity of supply equals 1.0, that demand is said to be elastic
192. In which of the following market structures individual firms have the highest control over product prices?
a.
Pure competition
b.
Monopolistic competition
c.
Oligopoly
d.
Monopoly
193. You are head of sales and marketing for your cowboy boots manufacturing firm. It has been a chaotic
product year, with a great deal of input from many stakeholders: consumer advocacy groups, employees,
competitors, and shareholders. You are meeting with the CEO to establish pricing objectives for the upcoming
product year.
Required:
Which of the following factors will you consider as you establish your firm’s pricing objectives?
a.
consumer advocacy groups’ concerns
b.
sales reps’ compensation packages
c.
competitors’ complaints
d.
the firm’s survival
e.
dissident shareholders’ complaints
194. Which of the following was rendered invalid by the federal Consumer Goods Pricing Act of 1975?
a.
The Robinson-Patman Act (1936)
b.
State unfair-trade laws
c.
State fair-trade laws
d.
The Clayton Act (1914)
195. Demand often shows:
a.
more elasticity in the short run than in the long run.
b.
less elasticity in the long run than in the short run.
c.
the same elasticity in the short run and in the long run.
d.
less elasticity in the short run than in the long run.
196. The exchange value of a good or service defines its:
a.
quality.
b.
price.
c.
durability.
d.
production cost.
Name:
Class:
Date:
chapter 18
Indicate one or more answer choices that best complete the statement or answer the question.
197. John learned in business school that full-cost pricing is a very common cost-oriented pricing procedure, and he
planned to use it in setting price for his firm's new software product. However, his boss is not convinced that full-cost
pricing is best, and wants John to list both its pluses and minuses in a memo. Which of the following should be included
in John's list?
a.
Full-cost pricing will enable the firm to recover all the costs it incurred while developing the software,
including the overhead of running its research and development lab.
b.
Full-cost pricing will take into account the likely competitive moves of other software developers.
c.
Full-cost pricing is based on a reliable projection of customer demand in the software market.
d.
Full-cost pricing does not ensure that overhead costs will be allocated appropriately.
e.
Full-cost pricing can use only those costs that are directly attributable to a specific output, like production of
1000 units of the software.
198. You work for an international women's clothing wholesaler. In the past, your firm has marketed mainly in Western
Europe, using price to achieve either profitability or prestige objectives. But changing business conditions mean that you
now need to focus on other pricing objectives. What conditions are likely to have changed?
a.
You are expanding into parts of the world where your clothing designs are less sought after than in Western
Europe.
b.
You are facing increased European competition.
c.
Your firm has become the lowest-cost supplier to most major customers.
d.
Your firm has become a price leader, able to establish international prices.
e.
Currency fluctuations have become a problem in your key markets.
199. You would like to apply breakeven analysis to know when your startup tutoring venture will turn a profit. Which of
the following considerations must you take into account?
a.
The hourly wage you pay your tutors.
b.
The rent you pay your office landlord.
c.
The hourly price you intend to charge for tutoring.
d.
The demand for tutoring services in your market.
e.
All of the above must be considered.
200. State University recently announced a plan to increase tuition. As president of the student government, you feel
obligated to protest. Luckily, before emailing a statement to the board of trustees, you asked your marketing professor to
proofread it. From the sentences below, choose the mistake(s) she caught.
a.
A tuition increase could harm the university by resulting in market suppression.
b.
A tuition increase could harm the university by resulting in cost recovery.
c.
If the university would reduce tuition instead of increasing it, this would create a market incentive and boost
enrollment.
d.
We believe the increase is a profit maximization strategy, which is never used by not-for-profit organizations.
e.
Price changes are never used by not-for-profit organizations to influence their markets.
201. Your friend works for a hotel in downtown Pittsburgh primarily serving business travelers. Choose all of the
following yield management strategies that he is likely to use.
a.
Higher prices on weekdays.
b.
Lower prices on weekends.
Name:
Class:
Date:
chapter 18
c.
Lower prices for rooms booked after 10:00 P.M. for a stay the same night.
d.
Lower prices for weekday stays extended through Saturday.
e.
Prices on all days lower than competition.
202. Janet owns a chain of ice cream shops. Her business has consistently been more profitable than competition -- despite
her decision to always charge the same prices as other stores, while offering unique flavors and home delivery. Now she
plans to sell the firm to an investor who believes that pricing is the key to success. Based on her experience, which of the
following pieces of advice would Janet be likely to give him?
a.
Continue focusing on profitability objectives.
b.
Continue using price to create market incentives.
c.
Continue deemphasizing the price element of the marketing mix.
d.
Don’t lose focus on product and distribution strategies.
e.
The most promising way to build market share is to start reducing prices relative to competition.
Match each item with the correct statement below.
a.
breakeven analysis
b.
tariffs
c.
unfair-trade laws
d.
incremental-cost pricing
e.
profit maximization
f.
demand
g.
value pricing
h.
monopoly
i.
elasticity
j.
marginal
k.
fair-trade laws
l.
yield management
m.
oligopoly
n.
cost-plus pricing
o.
full-cost pricing
p.
supply
q.
marginal analysis
r.
target-return objectives
s.
market-share objectives
t.
pure competition
203. _____ are taxes levied on the sale of imported goods and services.
204. _____ are state laws requiring sellers to maintain minimum prices for comparable merchandise.
205. Statutes enacted in most states that once permitted manufacturers to stipulate a minimum retail price for
Name:
Class:
Date:
chapter 18
their product are called _____.
206. The method of analyzing the relationship among costs, sales price, and increased sales volume is called
_____.
207. The point at which the additional revenue gained by increasing the price of a product equals the increase in
total costs is called _____.
208. Short-run or long-run pricing objectives of achieving a specified return on either sales or investment are
called _____.
209. _____ are volume-related pricing objectives that have the goal of controlling a portion of the market for a
firm’s product.
210. The pricing strategy that emphasizes benefits derived from a product in comparison to the price and quality
levels of competing offerings is called _____.
211. A schedule of the amounts of a firm’s product that consumers will purchase at different prices during a
specified time period is called _____.
212. A schedule of the amounts of a good or service that firms will offer for sale at different prices during a
specified time period is called _____.
213. A market structure characterized by homogeneous products in which there are so many buyers and sellers
that none has a significant influence on price is known as _____.
214. A market structure in which relatively few sellers compete and where high start-up costs form barriers to
keep out new competitors is referred to as a(n) _____.
215. A market structure in which a single seller dominates trade in a good or service for which buyers can find
no close substitutes is referred to as a(n) _____.
216. The change in total cost that results from producing an additional unit of output is called _____ cost.
217. _____ is the measure of the responsiveness of purchasers and suppliers to price changes.
218. The practice of adding a percentage of specified dollar amount—or markup—to the base cost of a product
to cover unassigned costs and to provide a profit is known as _____.
219. A pricing method, that uses all relevant variable costs in setting a product’s price and allocates those fixed
costs that cannot be directly attributed to the production of the priced item, is known as _____.
220. A pricing method that attempts to use only costs directly attributable to a specific output in setting prices is
known as _____.
221. A pricing technique that is used to determine the number of products that must be sold at a specified price
to generate enough revenue to cover total cost is known as _____.
Name:
Class:
Date:
chapter 18
222. A pricing strategy that allows marketers to vary prices based on such factors as demand, even though the
cost of providing those goods or services remains the same, is known as _____.
223. Describe the significance of yield management.
224. What are some of the organizational goals that pricing strategies can help not-for-profit organizations
achieve?
225. Explain the concept of value pricing.
226. Describe the significance of tariffs in the global market place.
227. Explain target-return objectives.
228. Explain market-share objectives.
229. Assume that the per unit price of a product is $100, total fixed costs are $50,000, and variable costs are $70
per unit. Find the breakeven point (in both units and dollars).
230. Explain the two most common cost-oriented pricing procedures: full-cost and incremental-cost.
231. What are the major weaknesses of traditional breakeven analysis?
232. Identify and briefly describe the legal constraints placed on pricing.
233. What are the practical problems involved in applying price theory concepts to actual pricing decision?
234. Explain customary prices.
235. Discuss the benefits of modified breakeven analysis.
236. Define price. Explain why setting prices can be a difficult process.
237. Identify and discuss the major categories of pricing objectives used by for-profit organizations.
238. List the four types of market structures based on the economic theory, and provide an example of an
industry or business for each of the four types.
239. Explain the concept of elasticity of demand.
240. Discuss cost-plus pricing.
241. The following table gives information about the price, number of units sold, and total costs incurred for a
product. Use the concept of marginal analysis and find the optimal price for the product.
Price ($)
Units Sold
Total Cost ($)
100
100,000
7,000,000
Name:
Class:
Date:
chapter 18
90
200,000
12,000,000
80
400,000
22,000,000
70
700,000
37,000,000
60
900,000
47,000,000
50
1,000,000
52,000,000
242. Explain the concept of marginal analysis.
Name:
Class:
Date:
chapter 18
Answer Key
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
Name:
Class:
Date:
chapter 18
