39) A reference value is developed by the consumer through
A) considering the amount of time and energy a consumer puts into the purchase process.
B) judging similar items used by the consumer’s peers.
C) performing a careful break-even analysis.
D) comparing the costs and benefits of substitute items.
E) examining the true difference between customers’ “needs” and “wants.”
40) In the purchase of the sugar substitute Splenda, you may compare it to something you know
about like real sugar. Although Splenda is more expensive than sugar, it is purchased by many
consumers because it sweetens with no calories. This situation involves the consumer considering
A) a marginal analysis.
B) a profit equation.
C) a break-even analysis.
D) price elasticity of demand.
E) a reference value.
41) If you know the contents and price of a McDonald’s Extra Value Meal, it may serve as
________ to you when you visit other fast food restaurants and consider the purchase of a meal
option there.
A) a marginal analysis
B) a profit equation
C) a reference value
D) a break-even analysis
E) price elasticity of demand
42) ________ = (Unit price × Quantity sold) − Total cost.
A) Total revenue
B) Variable cost
C) Net present value
D) Profit
E) Break-even point
23
43) According to the profit equation, profit equals
A) Total cost + Total revenue.
B) Total revenue − Total cost.
C) Marginal revenue − Marginal cost.
D) Price × Quantity.
E) Total revenue + Marginal cost.
44) The formula Total revenue − Total cost, or [(Unit price × Quantity sold) − (Fixed cost +
Variable cost)], represents
A) the value equation.
B) the sales ratio.
C) average revenue.
D) the break-even point.
E) the profit equation.
45) A firm’s profit equation equals
A) Total cost + Total revenue or [(Fixed cost + Variable cost) + (Unit price × Quantity sold)].
B) Total revenue − Total cost or [(Unit price × Quantity sold) − (Fixed cost + Variable cost)].
C) Total cost − Marginal cost or [(Fixed cost + Variable cost) − (Unit price × Quantity sold)].
D) Total cost − Variable cost or [(Fixed cost + Variable cost) − (Unit price × Quantity sold)].
E) Total revenue ÷ Total cost or [(Unit price × Quantity sold) ÷ (Fixed cost + Variable cost)].
46) Calculate a firm’s profit using the following information: the unit price (P) for a product is $40;
the quantity sold (Q) is 2,000; the fixed cost (FC) is $50,000; and the variable cost (VC) is
$20,000.
A) $10,000
B) $50,000
C) $110,000
D) $150,000
E) cannot be determined with the information provided
47) The key to setting a final price for a product is finding an approximate price level to use as a
reasonable starting point. Which of the following is one of four common approaches to selecting
an approximate price level?
A) demand-oriented
B) cause-oriented
C) revenue-oriented
D) stakeholder-oriented
E) distribution-oriented
Figure 11-2
48) Figure 11-2 above represents the four approaches to selecting an appropriate price level. Box
A represents which approach?
A) cost-oriented approach
B) profit-oriented approach
C) competition-oriented approach
D) demand-oriented approach
E) results-oriented approach
49) Figure 11-2 above represents the four approaches to selecting an appropriate price level. Box B
includes standard markup and cost-plus so it represents which approach?
A) demand-oriented approach
B) profit-oriented approach
C) competition-oriented approach
D) results-oriented approach
E) cost-oriented approach
50) Figure 11-2 above represents the four approaches to selecting an appropriate price level. Box C
includes target profit and target return on sales so it represents which approach?
A) demand-oriented approach
B) profit-oriented approach
C) competition-oriented approach
D) cost-oriented approach
E) results-oriented approach
51) Figure 11-2 above represents the four approaches to selecting an appropriate price level. Box
D includes customary and loss leader so it represents which approach?
A) competition-oriented approach
B) cost-oriented approach
C) profit-oriented approach
D) results-oriented approach
E) demand-oriented approach
52) Which of the following statements about the price-setting process is most accurate?
A) When selecting a strategy for setting an initial price, it doesn’t matter which one you use as long
as you stick with it.
B) Sometimes pricing strategies overlap, and a seasoned marketer will consider several strategies
when choosing an approximate price level.
C) Demand-oriented pricing approaches rely heavily on comparison with competitors’ prices.
D) Skimming pricing is a competition-oriented pricing strategy.
E) Penetration pricing is the best pricing strategy for companies trying to meet the goals of a
profit-oriented pricing approach.
53) Demand-oriented approaches weigh factors that underlie expected ________ more heavily
than such factors as cost, profit, and competition when selecting a price level.
A) total revenue
B) stakeholder concerns
C) discounting practices
D) product substitutes
E) customer tastes
54) All of the following are demand-oriented approaches to selecting an approximate price level
except which?
A) odd-even
B) yield management
C) bundle
D) customary
E) prestige
55) Skimming pricing is considered to be a ________ approach to pricing.
A) demand-oriented
B) cost-oriented
C) profit-oriented
D) competition-oriented
E) service-oriented
56) Setting the highest initial price that customers who really desire the product are willing to pay
when introducing a new or innovative product is referred to as
A) a skimming strategy.
B) a penetration strategy.
C) a price-lining strategy.
D) an experience-curve pricing strategy.
E) a prestige pricing strategy.
57) Skimming pricing refers to
A) setting the lowest initial price possible when introducing a new or innovative product in order
to “skim” sales from competitors.
B) setting the highest initial price that customers who really desire the product are willing to pay.
C) setting a low initial price on a new product to appeal immediately to the mass market.
D) the practice of replacing promotional allowances with higher manufacturer list prices.
E) setting a high price so that quality- or status-conscious consumers will be attracted to the
product and buy it.
58) Skimming pricing is a strategy that introduces a new or innovative product by
A) following a price elastic strategy.
B) creating multiple price points.
C) setting a high initial price.
D) setting a low initial price.
E) setting the price at the average of competitors’ prices.
59) There are several factors that predict when a skimming pricing policy is likely to be most
effective, including situations in which
A) consumers tend to be price-sensitive.
B) enough prospective customers are willing to buy immediately at a high initial price to make
these sales profitable.
C) leadership is expecting to meet high sales unit goals.
D) a lower price will significantly reduce unit costs.
E) consumers perceive your product to be similar to other products in the market.
60) A skimming pricing policy is likely to be most effective when
A) consumers perceive the company’s product to be similar to others on the market.
B) a lower price will significantly lower fixed costs.
C) the company’s product is easily and quickly duplicated.
D) consumers tend to be price-sensitive.
E) the high initial price will not attract competitors.
61) A manufacturer of a portable digital HD camera is considering a skimming pricing strategy for
its new product. Which of the following conditions would argue against using a skimming pricing
strategy for the camera?
A) There will be a large potential market, even if the product is sold at a high price.
B) Technological problems still exist for competitors; their products are not equivalent.
C) Increasing the volume sold reduces production costs substantially.
D) Consumers perceive a strong price-quality relationship for this product.
E) Many consumers in the target market are innovators.
62) The latest in appliance technology allows your refrigerator to send messages to your smart
phone and even photos of the interior to remind you of what you need to pick up at the store.
Taking advantage of strong consumer demand for technology-enabled products, marketers set
prices for these refrigerators at thousands above other models. These marketers are using a
________ pricing strategy.
A) skimming
B) penetration
C) loss leader
D) price lining
E) bundle
63) The first Apple iPhone was introduced in 2007 at an initial price of $600. People waited in line
overnight so they could be one of the first to own this unique smartphone. Which pricing strategy
did Apple use to help recoup its costs for developing the smartphone?
A) penetration pricing
B) experience curve pricing
C) customary pricing
D) skimming pricing
E) target pricing
64) Penetration pricing is considered to be a ________ approach to pricing.
A) demand-oriented
B) cost-oriented
C) profit-oriented
D) competition-oriented
E) service-oriented
65) Penetration pricing refers to
A) charging different prices to different buyers for goods of like grade and quality.
B) setting the highest initial price that customers really desiring the product are willing to pay.
C) setting a low initial price on a new product to appeal immediately to the mass market.
D) setting a market price for a product or product class based on a subjective feel for the
competitors’ prices or market price.
E) setting prices a few dollars or cents under an even number.
66) The pricing strategy that is almost the exact opposite of skimming pricing is
A) target pricing.
B) penetration pricing.
C) price lining.
D) odd-even pricing.
E) prestige pricing.
67) Penetration pricing is intended to appeal to which market?
A) highly selective, quality-seeking consumers
B) price-insensitive markets
C) specialty product markets
D) the same markets as those targeted with a skimming pricing strategy
E) the mass market
68) Which of the following statements about penetration pricing is most accurate?
A) Penetration pricing is a profit-oriented approach to pricing.
B) Penetration pricing is a cost-oriented pricing method.
C) Penetration pricing encourages competitors to enter a market.
D) Penetration pricing is more effective for a price-sensitive market segment.
E) Penetration pricing usually precedes a skimming pricing.
69) Several factors indicate that a penetration pricing policy would most likely be effective when
introducing a new product, including situations in which
A) lowering the price has only a minor effect on increasing the sales volume and reducing the unit
cost.
B) the high initial price will not attract competitors.
C) customers interpret the high price as signifying high quality.
D) enough prospective customers are willing to buy immediately at the high initial price to make
these sales profitable.
E) many segments of the market are price-sensitive.
70) A penetration pricing policy is most likely to be effective when which of these is true?
A) Lowering the price has only a minor effect on increasing the sales volume and reducing the unit
cost.
B) The high initial price will not attract competitors.
C) A low initial price discourages competitors from entering the market.
D) Customers interpret the high price as signifying high quality.
E) Enough prospective customers are willing to buy immediately at the high initial price to make
these sales profitable.
71) In some cases, penetration pricing may follow ________ after price insensitive customers have
already purchased.
A) experience curve
B) target ROI
C) odd-even
D) above market
E) skimming
72) In some cases, penetration pricing may follow skimming pricing. The skimming pricing would
help ________ and the penetration pricing would help ________.
A) increase market share; attract price-insensitive customers
B) attract price-sensitive customers; increase market share
C) recoup initial research and development costs; increase market share
D) recoup initial research and development costs; improve firm reputation
E) increase market share; attract price insensitive customers
73) When Amazon introduced the latest Kindle Fire tablet at $49.99 and the average price of
competitive models was $323, Amazon was using a ________ pricing strategy.
A) skimming
B) price lining
C) BOGO
D) penetration
E) loss-leader
74) In response to Duracell’s introduction of the Duracell Ultra battery, Energizer introduced an
Advanced Formula battery. But unlike Duracell, Energizer priced its batteries at a low initial price,
believing that consumers were too price-sensitive to pay more in this category. In this case,
Energizer used
A) penetration pricing.
B) prestige pricing.
C) skimming pricing.
D) price lining.
E) cost-plus-fixed-fee pricing.
75) Wrigley introduced a new flavor of Orbit brand sugar-free chewing gum, mint mojito, and its
introductory price was low so that it quickly created loyal customers for the flavor. In this
example, Wrigley used
A) skimming pricing.
B) penetration pricing.
C) price lining.
D) odd-even pricing.
E) loss-leader pricing.
76) When Hallmark cards introduced a line of 99-cent cards (about half the price of the previously
least expensive cards it sold), the greeting card company was trying to appeal to a mass market that
was price-sensitive. Hallmark was using a(n) ________ pricing strategy.
A) prestige
B) skimming
C) target ROI
D) penetration
E) experience-curve