Question 1

In traditional break-even analysis, the price elasticity of demand is considered to be

Accepted Answer

A)  positive. 
B)  unitary. 
C)  elastic. 
D)  inelastic. 
A)  positive. 
B)  unitary. 
C)  elastic. 
D)  inelastic.

Question 2

A firm with inelastic consumer demand and patent protection should utilize

Accepted Answer

A)  a penetration price strategy. 
B)  a skimmimg price strategy. 
C)  subjective pricing. 
D)  market-driven pricing. 
A)  a penetration price strategy. 
B)  a skimmimg price strategy. 
C)  subjective pricing. 
D)  market-driven pricing.

Question 3

Differentiate among these pricing alternatives:
a. One-price policy.
b. Customary pricing.
c. Flexible pricing.
d. Variable pricing.

Accepted Answer

a. One-price policy: This is a pricing s

Question 4

In target pricing, it is assumed that half of the standard volume will be sold at the target price.

Accepted Answer

A) True 
 B)False

Question 5

What type of marketing research information is most important to a firm using a demand-based pricing strategy?

Accepted Answer

A)  Data on competitors' manufacturing costs and general overhead 
B)  An analysis of competitors' reactions to price changes made by the firm in the past three years 
C)  An analysis of a proposed federal tax on imported components 
D)  An analysis of the price elasticity of the target market 
A)  Data on competitors' manufacturing costs and general overhead 
B)  An analysis of competitors' reactions to price changes made by the firm in the past three years 
C)  An analysis of a proposed federal tax on imported components 
D)  An analysis of the price elasticity of the target market

Question 6

Which of these is an indication that a pricing strategy may be performing poorly?

Accepted Answer

A)  A firm is unable to match a competitor's price due to its high overall cost structure. 
B)  A manufacturer has to frequently change its prices to match those of competitors. 
C)  Consumers appear to be overwhelmed by the number of products offered and the differences among them. 
D)  Foreign currency fluctuations increase the economic uncertainty for an importer of electronics goods. 
A)  A firm is unable to match a competitor's price due to its high overall cost structure. 
B)  A manufacturer has to frequently change its prices to match those of competitors. 
C)  Consumers appear to be overwhelmed by the number of products offered and the differences among them. 
D)  Foreign currency fluctuations increase the economic uncertainty for an importer of electronics goods.

Question 7

A company's total fixed costs are $150,000. Variable costs per unit as a percentage of selling price equal 30 percent. The firm's break-even point in dollar sales equals $214,286.

Accepted Answer

A) True 
 B)False

Question 8

A carpet retailer requires a 40 percent markup at retail on wall-to-wall carpeting and a 25 percent markup at retail on area rugs. The differences in markup are due to larger minimum purchase quantities and installation costs of wall-to-wall carpeting. This firm is using

Accepted Answer

A)  target pricing. 
B)  a variable markup policy. 
C)  price discrimination. 
D)  price-floor pricing. 
A)  target pricing. 
B)  a variable markup policy. 
C)  price discrimination. 
D)  price-floor pricing.

Question 9

A firm's meeting the lower price of a competitor (but being careful not to start a price war) illustrates the use of ___-based pricing objectives.

Accepted Answer

A)  status quo 
B)  profit 
C)  sales 
D)  early-recovery-of-cash 
A)  status quo 
B)  profit 
C)  sales 
D)  early-recovery-of-cash

Question 10

Skimming pricing is the proper approach when a firm seeks the mass market as its target market.

Accepted Answer

A) True 
 B)False

Question 11

Penetration pricing is best used with which pricing objective?

Accepted Answer

A)  Status quo-based 
B)  Sales-based 
C)  Broad-based 
D)  Profit-based 
A)  Status quo-based 
B)  Sales-based 
C)  Broad-based 
D)  Profit-based

Question 12

a.	Differentiate among an escalator clause, surcharge, and additional markups.
b. Explain the difference between a markdown and a rebate from the perspective of a manufacturer and a retailer.

Accepted Answer

a. An escalator clause, surcharge, and a

Question 13

Firms can first use skimming pricing to attract innovators and then switch to penetration pricing to attract the mass market.

Accepted Answer

A) True 
 B)False

Question 14

A skimming price is best used to attract the price-sensitive market segment.

Accepted Answer

A) True 
 B)False

Question 15

A firm's investment cost is $50 million; and its target return on investment is 15 percent. If the standard volume is 100,000 units and average total costs (at standard volume) equal $25 per unit, the company's target price equals $100.

Accepted Answer

A) True 
 B)False

Question 16

A firm has total fixed costs of $2 million; its price is $20 per unit above its variable costs. Its break-even point in units

Accepted Answer

A)  is 75,000. 
B)  is 100,000. 
C)  is 20,000,000. 
D)  cannot be determined based on the data provided. 
A)  is 75,000. 
B)  is 100,000. 
C)  is 20,000,000. 
D)  cannot be determined based on the data provided.

Question 17

A key potential difficulty with cost-based pricing is that

Accepted Answer

A)  different ways of assigning costs will yield varying results. 
B)  it may be unable to include profit projections. 
C)  Magnuson-Moss Act violations may occur. 
D)  modified break-even analysis may be hard to compute. 
A)  different ways of assigning costs will yield varying results. 
B)  it may be unable to include profit projections. 
C)  Magnuson-Moss Act violations may occur. 
D)  modified break-even analysis may be hard to compute.

Question 18

When using odd pricing, firms should recognize that

Accepted Answer

A)  small price increases usually have a large positive effect on sales and profits. 
B)  flexible pricing increases transaction costs. 
C)  flexible pricing undermines consumer confidence. 
D)  sales tax may undermine the effectiveness of this practice. 
A)  small price increases usually have a large positive effect on sales and profits. 
B)  flexible pricing increases transaction costs. 
C)  flexible pricing undermines consumer confidence. 
D)  sales tax may undermine the effectiveness of this practice.

Question 19

Target pricing is most commonly used by

Accepted Answer

A)  high labor-intensive firms. 
B)  firms with high excess capacity. 
C)  capital-intensive firms. 
D)  leveraged buyouts. 
A)  high labor-intensive firms. 
B)  firms with high excess capacity. 
C)  capital-intensive firms. 
D)  leveraged buyouts.

Question 20

Which statement concerning cost concepts is correct?

Accepted Answer

A)  Average total costs usually decline over the entire range of production. 
B)  Total fixed costs usually rise over the entire range of production. 
C)  Average fixed costs are usually constant over the entire range of production. 
D)  Total variable costs are usually constant over the entire range of production. 
A)  Average total costs usually decline over the entire range of production. 
B)  Total fixed costs usually rise over the entire range of production. 
C)  Average fixed costs are usually constant over the entire range of production. 
D)  Total variable costs are usually constant over the entire range of production.

Exam 21: Developing and Applying a Pricing Strategy

In traditional break-even analysis, the price elasticity of demand is considered to be

A firm with inelastic consumer demand and patent protection should utilize

Differentiate among these pricing alternatives: a. One-price policy. b. Customary pricing. c. Flexible pricing. d. Variable pricing.

In target pricing, it is assumed that half of the standard volume will be sold at the target price.

What type of marketing research information is most important to a firm using a demand-based pricing strategy?

Which of these is an indication that a pricing strategy may be performing poorly?

A company's total fixed costs are $150,000. Variable costs per unit as a percentage of selling price equal 30 percent. The firm's break-even point in dollar sales equals $214,286.

A carpet retailer requires a 40 percent markup at retail on wall-to-wall carpeting and a 25 percent markup at retail on area rugs. The differences in markup are due to larger minimum purchase quantities and installation costs of wall-to-wall carpeting. This firm is using

A firm's meeting the lower price of a competitor (but being careful not to start a price war) illustrates the use of ___-based pricing objectives.

Skimming pricing is the proper approach when a firm seeks the mass market as its target market.

Penetration pricing is best used with which pricing objective?

a. Differentiate among an escalator clause, surcharge, and additional markups. b. Explain the difference between a markdown and a rebate from the perspective of a manufacturer and a retailer.

Firms can first use skimming pricing to attract innovators and then switch to penetration pricing to attract the mass market.

A skimming price is best used to attract the price-sensitive market segment.

A firm's investment cost is $50 million; and its target return on investment is 15 percent. If the standard volume is 100,000 units and average total costs (at standard volume) equal $25 per unit, the company's target price equals $100.

A firm has total fixed costs of $2 million; its price is $20 per unit above its variable costs. Its break-even point in units

A key potential difficulty with cost-based pricing is that

When using odd pricing, firms should recognize that

Target pricing is most commonly used by

Which statement concerning cost concepts is correct?

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