KEY: CB&E Model Pricing MSC: BLOOMS Level III Application
58. The two types of costs a marketer needs to consider when setting prices are:
a.
primary and secondary
b.
variable and fixed
c.
marginal and absolute
d.
short-term and long-term
e.
elastic and inelastic
59. A cost that changes with the level of output is called a(n) _____ cost.
a.
liquidity
b.
variable
c.
fixed
d.
asset
e.
elastic
60. Which of the following is most likely to be a variable cost for an Internet retailer that sells spices,
herbs, and seasonings to consumers?
a.
Annual lease on mixer used to blend seasonings
b.
Executive salaries
c.
Rent for building where spices and herbs are repackaged for consumers
d.
Workers’ insurance
e.
Postage for shipping spices and herbs
61. For a nail salon, the costs associated with the purchase of nail polish and other products like nail polish
remover, sterilized equipment, laundry service for the towels, and the beverages given to customers,
are all examples of _____ costs.
a.
marginal
b.
variable
c.
fixed
d.
promotional
e.
liquidity
62. _____ costs do not change as output is increased or decreased.
a.
Asset
b.
Variable
c.
Fixed
d.
Symmetrical
e.
Status quo
63. Central Bark is a dog resort where pets are pampered. Which of the following is the BEST example of
one of its fixed costs?
a.
Payment on the building used by Central Bark
b.
Dog biscuits
c.
Dog collars and leashes
d.
Bubble bath
e.
Advertisements in local magazines
64. Patrick owns Liberty Tax and Bookkeeping Services. The monthly mortgage payment Patrick makes
on his small office building and the annual cost of his business license are all examples of _____ costs.
a.
marginal
b.
variable
c.
fixed
d.
promotional
e.
demand
65. Total variable costs divided by quantity of output equals:
a.
average total cost
b.
mean intermittent cost
c.
fixed cost
d.
marginal cost
e.
average variable cost
66. _____ cost is the change in total costs associated with a one-unit change in output.
a.
Variable
b.
Intermittent
c.
Elastic
d.
Marginal
e.
Flex
67. Monthly output at Leisure-Time, Inc. changed from 12 to 13 prefabricated gazebos, and the total costs
changed from $9,000 to $10,500. What is the marginal cost for this company?
a.
$1,500
b.
$2,000
c.
$1,200
d.
$10,000
e.
$12,000
68. When a seller determines the selling price by adding to cost an amount for profit and expenses not
previously accounted for, the seller is using _____ pricing.
a.
profit maximization
b.
demand-oriented
c.
break-even
d.
target return
e.
markup
69. The most popular method used by wholesalers and retailers in establishing a sales price is _____
pricing.
a.
markup
b.
status quo
c.
formula
d.
marginal revenue
e.
break-even
70. Cowboy Malone’s Electric City pays a wholesaler $692 for a television and sells it to a customer for
$1,500. The markup on the television is:
a.
$240
b.
$160
c.
$692
d.
$800
e.
$1,500
71. The difference between the retailer’s cost and the selling price is the:
a.
gross margin
b.
markup percentage
c.
profit
d.
keystone
e.
breakeven profit
72. The owner of specialty kitchen retail store wants to determine what price she should put on a set of
mixing bowls. They cost her $7. She desires a markup of 30 percent based on selling price. Which of
the following is closest to the price she should charge her customers?
a.
$19
b.
$12
c.
$15
d.
$10
e.
$18
73. An office supply store can buy a desk for $300. If the store owner sells the desk for $450, what is the
markup based on cost?
a.
15 percent
b.
20 percent
c.
25 percent
d.
33 percent
e.
50 percent
74. An office supply store can buy a desk for $300. If the store owner sells the desk for $450, what is the
markup based on the selling price?
a.
15 percent
b.
20 percent
c.
25 percent
d.
33 percent
e.
50 percent
75. _____ is the practice of marking up prices by 100 percent (or doubling the cost to set the selling price).
a.
Margin pricing
b.
Keystoning
c.
Mark-on adding
d.
Formula doubling
e.
Symmetrical pricing
76. As long as the revenue of the last unit produced and sold is greater than the cost of the last unit
produced and sold, a firm should:
a.
continue manufacturing
b.
not use formula pricing
c.
continue using price equilibrium
d.
consider using sales maximization pricing
e.
reach its break-even point very shortly
77. Keystoning is:
a.
the practice of marking up prices by 100 percent
b.
a method used for determining the point of elasticity
c.
a plan for reducing marginal costs
d.
the practice of maintaining variable costs at one-half of total fixed costs
e.
a method of changing consumers’ perceptions about price
78. The Nest is a retail store owned and operated by an interior designer. The markup on all items in the
store is 100 percent over cost (or double the cost). In this case we would say that the designer uses:
a.
keystoning
b.
target ROI pricing
c.
break-even pricing
d.
marginalizing
e.
double sourcing
79. Profit maximization occurs when:
a.
total costs equals average fixed revenue
b.
average variable costs are larger than average total costs
c.
total costs equal total variable costs
d.
marginal variable costs equal average revenues
e.
marginal revenue equals marginal cost
80. _____ is the extra revenue associated with selling an additional unit of output.
a.
Average revenue
b.
Marginal revenue
c.
Marginal cost
d.
Net profit
e.
Average variable cost
81. The point at which marginal cost and marginal revenue are equal always results in:
a.
maximization of elasticity
b.
maximization of revenue
c.
maximization of costs
d.
maximization of profits
e.
break-even equilibrium
82. _____ determine what sales volume must be reached for a product before the company’s total costs
equal total revenue and no profits are earned.
a.
Marginal revenue estimates
b.
Price equilibrium analyses
c.
Break-even analyses
d.
Average total cost (ATC) figures
e.
Marginal costs of goods sold
83. The typical break-even model assumes a given fixed cost and a:
a.
variable per unit cost
b.
constant inventory turnover
c.
markup cost attained through keystoning
d.
constant production schedule
e.
constant average variable cost
84. Fixed cost contribution equals:
a.
price times the average fixed cost
b.
price plus the average variable cost
c.
average variable cost plus average fixed cost
d.
break-even quantity times price
e.
price minus the average variable cost
85. Your Memory Lane creates custom art prints that use graphs and icons in a street scene to
commemorate special occasions. Suppose Your Memory Lane has priced its product at $350 per print.
Further, it has determined that the company’s fixed cost is $12,500, with an average variable costs per
print of $250. What is his fixed cost contribution per print?
a.
$225
b.
$100
c.
$605
d.
$2.25
e.
$1.25
86. Your Memory Lane produce custom-made art prints that include graphics and icons to celebrate life’s
special moments. For example, on his wedding anniversary David had an art print produced that
celebrated highlights of his ten years with his wife, Kathy. Suppose Your Memory Lane sells the
custom artwork for $500. It estimates its average variable costs to be $200 per unit produced. It figures
its fixed costs to be $900,000 per year. How many prints does it have to sell to break even?
a.
2,000 prints
b.
1,200 prints
c.
3,000 prints
d.
2,500 prints
e.
6,000 prints
87. Pet’s Eye View Digital Camera is a small, durable digital camera that pet owners can clip to their pets’
collars. A programmable timer takes pictures every few minutes, recording a photographic diary of the
pet’s day. The camera sells for $25. The average variable cost for each camera is $10 and the total
annual fixed costs for plant operation are $45,000. What is the break-even point in units?
a.
1,800
b.
2,500
c.
3,000
d.
4,500
e.
5,000
88. Regency, Inc. makes disposable cap and gown sets for graduations. Each cap and gown set sells for
$15. The average variable cost for manufacturing 10 cap and gown sets is $100. Total fixed costs for
the year equal $65,000. Calculate the break-even point in units.
a.
650
b.
765
c.
1,300
d.
4,334
e.
13,000
89. Ceylon Express sells bottled pasteurized tea to retailers. It has the following revenues and costs:
Sales price per bottle:
$0.50
Average variable costs per bottle:
$0.30
Total fixed costs (annual):
$50,000
Tax rate:
20 percent
What is the annual break-even point in units for the company?
a.
50,000
b.
250,000
c.
100,000
d.
166,667
e.
500,000
90. Which of the following statements describes a limitation associated with break-even analysis?
a.
It is sometimes difficult to ascertain whether a cost is fixed or variable.
b.
It requires the calculation of marginal revenue.
c.
It strictly considers demand.
d.
It assumes variable cost per item, which is difficult to calculate.
e.
It can only be expressed as a break-even point in dollar amounts.
91. Which of the following statements about pricing strategies throughout the product life cycle is
FALSE?
a.
During product decline, prices may also decline until there is only one competitor left in
the market.
b.
Price increases during the maturity stage are cost initiated instead of demand initiated.
c.
The maturity stage often brings about price decreases.
d.
Prices stabilize when the product enters the growth stage.
e.
With inelastic demand, price will be set low in the introduction stage.
92. When Apple Inc. developed and introduced the iPhone it was unique as it essentially combined a
cellular phone with an iPod, an Internet browser, and email capabilities. As such, in the short run it
seemed that demand for the product would be inelastic, with no real existing competition. The
recommend pricing strategy in such a situation would be:
a.
low initial price, rising slightly when entering the growth stage
b.
high initial price, falling slightly when entering the growth stage
c.
high price, continuing through growth and maturity
d.
low price, continuing through growth and maturity
e.
low price initially, rising constantly through growth and into maturity
93. As a product enters the growth stage, prices generally begin to stabilize. One reason for this is that:
a.
the product has begun to appeal to a broader market
b.
most competitors have been eliminated from the market
c.
manufacturers hope to recover their development costs quickly
d.
the available supply decreases
e.
All of the above are correct.
94. Price wars often break out:
a.
as a product enters the growth stage
b.
when a product if first introduced onto the market
c.
as a result of keystoning
d.
when a product enters the decline stage of the life cycle
e.
in hotly competitive markets
95. Kroger supermarkets will place well-known brands on the shelves at high prices while offering their
own Kroger brand at lower prices. This practice is an example of:
a.
illegal pricing
b.
selling against the brand
c.
price pressurization
d.
brand cutting
e.
private-label cannibalization
96. Manufacturers can do all of the following to regain some control over the price their products are sold
for at the retail level EXCEPT:
a.
require resellers to maintain prices in line with competitors’ prices
b.
developing brand loyalty in consumers by delivering quality and value
c.
avoiding doing business with price-cutting discounters
d.
franchising
e.
using an exclusive distribution system
97. Shopping bots:
a.
encourage a more creative use of advertising
b.
link manufacturers, suppliers, and customers
c.
create opportunities for prestige pricing
d.
provide a means for comparison shopping
e.
create inelastic demand
98. Which of the following statements about the Internet is true?
a.
The Internet has shifted all shopping power to consumers.
b.
Consumer reviews tend to be equal in quality.
c.
Business-to-business auctions on the Internet are likely to be more important than
consumer auctions in the future.
d.
Fraud is not a problem on the Internet.
e.
Extranets are programs that search the Internet for the best price for a particular product.
99. During the hot summer months or the week before a new class starts if there is still space available, the
Nick Price golf school in Orlando, Florida offers a 25 percent reduction to get golfers during the
off-season or those making a last-minute decision. This is an example of pricing strategy used as a(n):
a.
distribution tool
b.
price enhancer
c.
product strategy
d.
direct sales tool
e.
promotion strategy
100. Many consumers, especially when faced with an uncertain purchase decision, think that a high price:
a.
is a signal of quality
b.
is an indication that consumers are being ripped off
c.
will always lead to major price discounts to wholesalers and retailers that distribute it
d.
is a sign of the company’s overall market share
e.
indicates that the brand was slipping into the decline stage of the product life cycle but has
had a sudden resurgence of growth
101. What does the lack of a price-matching guarantee tend to signal to the target market?
a.
The retailer has a profit-oriented pricing objective
b.
The retailer provides a high level of service
c.
The retailer has many competitors in the target market
d.
The retailer is selling against the brand
e.
The retailer is positioned as a low-price dealer
102. David likes New Balance running shoes. However, when he stopped by the Foot Locker to buy a new
pair of running shoes he notice that Nike had a new pair of running shoes that cost $350. To David the
higher price of the Nike shoe indicated that it would be a better pair of running shoes. This is an
example of:
a.
premium pricing
b.
price lining
c.
prestige pricing
d.
exclusive pricing
e.
selective pricing
103. When the Apple iPhone 3G was introduced the Apple iTunes web site also began selling small
program “apps” written by third parties that could be run on the iPhone. One interesting app was the “I
Am Rich” application. For a price of $1,000 you could buy this app that did nothing but display a red
gem on the iPhone’s screen. The description of the app stated that this red icon would remind you (and
others you show it to) “that you were rich enough to afford this.” Six of the applications were sold
before Apple Inc. removed the app from iTunes. At the $1,000 price the author of the app was using
_____ pricing as part of his marketing approach.
a.
snob appeal
b.
prestige
c.
exclusive
d.
selective
e.
unique
104. Marketing managers who attempt to raise the quality image of their product by selling it at high prices
are following a(n) _____ strategy.
a.
profit maximization
b.
market share
c.
maintained markup pricing
d.
prestige pricing
e.
investment asset
105. Laurie knows little about cooking and does not want to spend the time to learn how to make a quiche.
However, she has been asked to bring a quiche to an office retirement party. Not wanting to make a
poor choice, she is likely to:
a.
intuitively make the right choice
b.
avoid making a decision by not attending the party
c.
buy the most expensive pre-made quiche (perhaps paying too much), guessing that the
price is related to quality
d.
research the product and buy the least expensive frozen quiche she can find
e.
buy the least expensive frozen quiche because most consumers feel that price is not
directly related to quality
106. The dimensions of quality that are important to consumers include:
a.
versatility
b.
serviceability
c.
performance
d.
ease of use
e.
all of the choices
107. When Jerry took delivery of his brand new (and very expensive) Jaguar automobile, he was filled with
pleasure and excitement. This is an example of the _____ effect associated with the price-quality
relationship.
a.
durability
b.
allocative
c.
prestige
d.
hedonistic
e.
performance
“Going green” doesn’t have to be boring. The Tesla Roadster Sport is an electric car that goes from 0
to 60 in four seconds and drives more like a race car than an environmentally-friendly ride. But that
level of performance will set you back $128,500. As of 2009, Silicon Valley-based Tesla Motors,
Inc. was the only company offering highway-compatible electric cars. Most Roadster Sport buyers
are car enthusiasts and are buying them for the “fun toy” aspect of having an electric car rather than for
environmental reasons.
108. Refer to Tesla Motors. The price of the Roadster was set so that total revenue was as large as possible
relative to total costs. This represents a _____ approach.
a.
profit maximization
b.
market share pricing
c.
demand-oriented pricing
d.
sales maximization
e.
status quo pricing
109. Refer to Tesla Motors. If Tesla had assets of $5 million and net profits after taxes of $550,000, what
is Tesla’s return on investment (ROI)?
a.
1 percent
b.
9 percent
c.
11 percent
d.
$14,135
e.
$4,450,000
110. Refer to Tesla Motors. If total fixed costs are $23,400,000 and the average variable costs is $50,500,
how many Roadsters must Tesla sell to break-even?
a.
130
b.
182
c.
250
d.
300
e.
463
111. Refer to Tesla Motors. What is the fixed cost contribution for the Roadster given average variable
costs of $50,500?
a.
$50,500
b.
$78,000
c.
$128,500
d.
$179,000
e.
$500,000
112. Refer to Tesla Motors. Tesla set the price of the Roadster high because the company wanted to
promote a high-quality image. What type of pricing does this represent?
a.
Prestige pricing
b.
Elite pricing
c.
Penetration pricing
d.
Quality pricing
e.
Complete pricing