69. Rodi owns Hallman’s auto repair service. He has observed over the years that customers keep their high-mileage cars longer when the economy is
doing poorly, creating demand for his maintenance and repair service. Rodi has observed the impact of _______ on demand for his service.
70. There are many options available to consumers when it comes to breakfast cereals. So, if Kellogg’s significantly increases the price of Rice Krispies,
consumers are more apt to buy alternate cereals instead. This illustrates which concept?
71. The more substitutes that exist in a market,
72. Brad always buys and uses Nike brand golf balls. If he finds a Titleist or Callaway ball in the rough, he gives it away. Brand-loyal golfers like Brad
allow Nike to charge a higher price and not lose many sales. By building a strong brand, Nike has effectively
73. Marketers spend millions of dollars annually trying to create or reinforce brand loyalty. Brand loyalty changes the demand curve for the firm’s
products by
74. Cross-price elasticity is the
75. _______ products are products whose demands are positively related and as such, they rise or fall together.
76. Which of the following is the most logical example of complementary products?
77. Bill is a yacht broker in the southeastern United States. For years he has had difficulty selling large yachts locally because there were few places to
dock these boats. Yachts and spaces to dock them are an example of
78. If the price for a product increases, the demand for the complementary product will
79. Frank’s Heating and Air Conditioning Company specializes in electric heat pumps. Frank keeps track of the price of natural gas, knowing that
80. Managers of Wendy’s fast-food restaurants keep track of prices at competitors such as McDonald’s, Burger King, and Arby’s, knowing that a
decrease in the prices at these other fast-food restaurants will
81. One problem in relying on price elasticity and demand curves when setting prices is
82. In general, prices should not be based on costs because
83. Consider a bakery like Entenmann’s: The majority of the ___________ costs are the cost of the ingredients, primarily flour.
84. David manages a Shoney’s restaurant. He is considering staying open later in the evening. For David, the variable costs associated with staying open
longer hours will include all of the following except
85. Variable costs change with
86. Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new
customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For
Raymond, the total cost of opening the new branch and remaining open for one year will be
87. At the break-even point,
88. The break-even point is estimated by
89. If the fixed costs of manufacturing a new cell phone are $10,000, the sales price is $60, and variable cost per unit is $20, the break-even point is
90. Jacob rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20, to cover maid service and utilities. His
fixed costs are $100,000 and his profit last year was $20,000. For Jacob, the contribution per unit is
91. The contribution per unit is
92. Jason rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20. His fixed costs are $100,000 and his target
profit is $20,000. For Jason, to earn his target profit, he will need to rent out ________ rooms.
93. Break-even analysis is useful because it allows managers to
94. One of the limitations associated with break-even analysis is that
95. Which of the following markets is most likely to be characterized by oligopolistic competition in the United States?
96. Because there are only a few firms in markets with oligopolistic competition,
97. In a market with _______ there are many firms providing differentiated products.
98. Because there are many firms in monopolistic competition markets,
99. In _______ many firms provide similar products that are considered substitutes for each other.
100. Which of the following is most likely to be characterized by pure competition in the United States?
101. Because there are many firms with similar products in purely competitive markets,
102. If a firm in a purely competitive market can differentiate its product or service, it becomes part of a(n) _______ market.
103. How can a company find its way out of a market characterized by pure competition?
104. When the price for Blu-ray players dropped, the demand for DVD players went down, so DVD players and Blu-ray players are
105. In one year, the Hotel by the Shore incurred $100,000 in fixed costs. Because the hotel booked 10,000 room nights, its total variable cost is
$100,000 (10,000 room nights $10 per room). Thus, its total cost is
106. There is often only one provider of cable television services in each region of the country: Time Warner is in New York, Comcast is in most of New
England, and so forth. When Comcast recently proposed a plan to buy Time Warner, the purchase ultimately could not be completed, mostly due to
concerns that it would have caused Comcast to become an overly large ________with too much power.
107. Predatory pricing
108. Diane owns a bakery where she sells cupcakes. Two blocks down there is another bakery, CC’s Bakery, that sells cupcakes for $1 less than Diane.
Diane decides to lower her price and match CC’s Bakery prices. What type of pricing strategy is Diane implementing?
109. The point at which the number of units sold generates enough revenue to equal the total costs of running an operation is known as the
110. The commercial airline industry is considered what type of market?
Essay Questions
111. Developing a good pricing strategy is essential to the financial well-being of a firm. Even though a firm has an excellent strategy, what are
continuing threats to the strategy?
112. Suppose that a friend asks you to drive him to the airport this weekend so he can catch a flight. He pays you for the gas used driving to the airport,
and for the cost of parking the car at the airport while you help him in with his bags. He then declares that you are now “even,” since he has fully
compensated you for any costs you incurred in helping him get to his flight. From your perspective, what aspects of the “price” of taking your friend to
the airport has he omitted?
113. Most public colleges charge less than half the price of similar private colleges. How can each type of college be delivering value?
114. What five components should be taken into consideration when a company is developing its pricing objectives?
115. What methods might a firm use when pricing based on a profit orientation and how do they differ?
116. Joe’s Deli is trying to compete with the local Subway store. When Subway offers lower prices on certain sandwiches during its “customer
appreciation month,” Joe’s Deli reduces the price of its similar subs in order to compete. What pricing orientation is being utilized by Joe’s Deli?
117. If upscale manufacturers of prestige products like BMW autos, Tiffany glass, or Rolex watches offered lower-priced products, what might happen
118. How is the price elasticity for Crest toothpaste likely to be different from the price elasticity for all toothpastes (a product category)? Why are they
likely to be different?
119. When the major league baseball season opens in April, teams that are located in the Midwest and Northeast are still experiencing colder and
frequent rainy weather. This often results in fewer fans attending these April games. What can these ball clubs do to maximize their revenue during this
time period?
120. How is consumer behavior affected by the “income effect”?
121. Explain the difference between fixed and variable costs and provide examples of each.
Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production. Typically these costs include
items such as rent, utilities, insurance, administrative salaries (for executives and higher-level managers), and the depreciation of the physical plant and
14–28
122. Small-business consultants are constantly admonishing would-be entrepreneurs, “Beware of the overhead.” Using an overhead (fixed costs) of
$100,000 and then an overhead of $200,000, with a contribution per unit of $50, determine the break-even points.
123. Why might it be considered more fun and challenging for a marketer to be part of a market characterized by monopolistic competition than be part
of one characterized by pure competition?
124. Fenton has always used standard markups to determine the prices for his clothing products. You are advising him to change his pricing strategy.
What advice would you give Fenton?
125. Brandon is conducting an experiment, charging different prices for the same products at different stores and measuring sales. With this
information, he will construct a demand curve. How can Brandon use this information?
126. Karen initially charged $80 for an hour-long massage and averaged 20 clients per week. When she raised her price to $100, the number of
massages decreased to 15 per week. What is the price elasticity of demand for her service?
127. Raymond estimates the fixed costs associated with opening a new bank branch are $500,000. He estimates the branch will attract 1,000 new
customers who will cost $50/year to service each of their accounts. He also expects to generate $100,000 in fees annually from these accounts. What
will be the total cost of opening the new branch and remaining open for one year?
14–29
128. Differentiate between the four levels of competition and offer examples of each type.
129. Why are price wars more common in oligopolies than in pure competition markets?
130. Explain how the demand curve works, and how it benefits a firm.
Category # of Questions
AACSB: Analytical Thinking 107
AACSB: Knowledge Application 23
Accessibility: Keyboard Navigation 110
Blooms: Analyze 10
Blooms: Apply 28
Blooms: Remember 33
Blooms: Understand 59
Difficulty: 1 Easy 35
Difficulty: 2 Medium 60
Difficulty: 3 Hard 35
Learning Objective: 14-01 List the four pricing orientations. 40
Learning Objective: 14-02 Explain the relationship between price and quantity sold. 12
Learning Objective: 14-03 Explain price elasticity. 46
Learning Objective: 14-04 Describe how to calculate a product’s break-even point. 14
Learning Objective: 14-05 Indicate the four types of price competitive levels. 18
Topic: Break-even Analysis 12
Topic: Economic Environment 15
14–30
Topic: Price Elasticity of Demand 28
Topic: Price Sensitivity 13
Topic: Pricing Strategy 56
Topic: Setting Prices 6