Question 1

Demand estimates are required for demand-backward pricing to be successful.

Accepted Answer

A) True 
 B)False

Question 2

Gabriella Sax believes that customers in her dress shop find certain prices very appealing. Between these price levels, all prices are seen as roughly the same--and price cuts in these ranges generally do not increase the quantity sold (i.e., the demand curve tends to drop vertically within these price ranges). Therefore, Sax prices her items as close as possible to the top of each such price range. This is:

Accepted Answer

A)  bait pricing. 
B)  prestige pricing. 
C)  leader pricing. 
D)  psychological pricing. 
E)  odd-even pricing. 
A)  bait pricing. 
B)  prestige pricing. 
C)  leader pricing. 
D)  psychological pricing. 
E)  odd-even pricing.

Question 3

Average-cost pricing consists of adding a 20 percent markup to the average cost of an item.

Accepted Answer

A) True 
 B)False

Question 4

If a manager sells more than was expected when average-cost pricing was used to set a price, the firm will lose money.

Accepted Answer

A) True 
 B)False

Question 5

The BEP, in units, can be found by dividing

Accepted Answer

A)  total fixed costs by the fixed cost contribution per unit. 
B)  total variable costs by the variable cost contribution per unit. 
C)  total variable costs by the fixed cost contribution per unit. 
D)  the assumed selling price per unit by the variable cost per unit. 
E)  total variable costs by target return. 
A)  total fixed costs by the fixed cost contribution per unit. 
B)  total variable costs by the variable cost contribution per unit. 
C)  total variable costs by the fixed cost contribution per unit. 
D)  the assumed selling price per unit by the variable cost per unit. 
E)  total variable costs by target return.

Question 6

A typical break-even analysis assumes that:

Accepted Answer

A)  the fixed-cost contribution per unit increases as units sold increases. 
B)  average fixed cost per unit is the same regardless of quantity sold. 
C)  demand curves are downward sloping. 
D)  average variable cost is the same regardless of quantity sold. 
E)  None of the above is true. 
A)  the fixed-cost contribution per unit increases as units sold increases. 
B)  average fixed cost per unit is the same regardless of quantity sold. 
C)  demand curves are downward sloping. 
D)  average variable cost is the same regardless of quantity sold. 
E)  None of the above is true.

Question 7

A major problem with average-cost pricing is that it does not allow for cost variations at different levels of output.

Accepted Answer

A) True 
 B)False

Question 8

The markup approach to price setting used by most intermediaries:

Accepted Answer

A)  makes little sense--given the large number of items carried and the small sales volume of any one item. 
B)  is very inflexible because the same markup percent must be applied to all products. 
C)  often uses the trade (functional) discount allowed by the manufacturer. 
D)  is quite complicated--because each product has a different delivered cost. 
E)  All of the above. 
A)  makes little sense--given the large number of items carried and the small sales volume of any one item. 
B)  is very inflexible because the same markup percent must be applied to all products. 
C)  often uses the trade (functional) discount allowed by the manufacturer. 
D)  is quite complicated--because each product has a different delivered cost. 
E)  All of the above.

Question 9

High Meadow Mfg. Co. sold its product through wholesalers and retailers--allowing the wholesalers a markup of 25 percent and retailers a markup of 40 percent. If the retail selling price is $100 and the manufacturer's cost is $30, what markup in dollars did High Meadow receive on the sale of this product?

Accepted Answer

A)  $5.00 
B)  $13.50 
C)  $15.00 
D)  $10.00 
E)  $20.00 
A)  $5.00 
B)  $13.50 
C)  $15.00 
D)  $10.00 
E)  $20.00

Question 10

Use this information for questions that refer to the Sporting Products, Inc. (SPI) case.
Randy Todd, marketing manager for Sporting Products, Inc. (SPI), is thinking about how changes taking place among retailers in his channel might impact his strategy.
SPI sells the products it produces through wholesalers and retailers. For example, SPI sells basketballs to Wholesale Supply for $8.00. Wholesale Supply uses a 20 percent markup and most of its "sport shop" retailer customers, like Robinson's Sporting Goods, use a 33 percent markup to arrive at the price they charge final consumers. However, one fast growing retail chain, Sports Depot, only uses a 20 percent markup for basketballs, even though it pays Wholesale Supply the same price as other retailers. Furthermore, Sports Depot occasionally lowers the price of basketballs and sells them at cost--to draw customers into its stores and stimulate sales of its pricey basketball shoes.
Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products. For example, Sports Depot prices all of its baseball gloves at $20, $40, or $60--with no prices in between. There are three big bins - one for each price point.
Todd is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out. The basic idea is to sell tennis balls in large quantities to nonprofit groups who resell the balls to raise money. For example, a service organization at a local college bought 2,000 tennis balls printed with the college logo. Sports Depot charged $.50 each for the tennis balls-plus a $500 one-time charge for the stamp to print the logo. The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless.
Todd is not certain if Sports Depot ideas will affect SPI's plans. For example, SPI is considering adding tennis racquets to the lines it produces. This would require a $500,000 addition to its factory as well as the purchase of new equipment that costs $1,000,000. The variable cost to produce a tennis racquet would be $20, but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each. That would allow most retailers to add their normal markup and make a profit. However, if Sports Depot sells the racquet at a lower than normal price other retailers might decide to carry it.
-The pricing approach Sports Depot uses to price its baseball gloves is called:

Accepted Answer

A)  odd-even pricing. 
B)  value-in-use pricing 
C)  prestige pricing. 
D)  bait pricing. 
E)  price lining. 
A)  odd-even pricing. 
B)  value-in-use pricing 
C)  prestige pricing. 
D)  bait pricing. 
E)  price lining.

Question 11

As output increases, a firm's average fixed cost probably will go down.

Accepted Answer

A) True 
 B)False

Question 12

A retailer of men's suits who is advertising a popular brand of dress shirts at a reduced price to attract customers is using:

Accepted Answer

A)  price lining. 
B)  leader pricing. 
C)  odd-even pricing. 
D)  bait pricing. 
E)  prestige pricing. 
A)  price lining. 
B)  leader pricing. 
C)  odd-even pricing. 
D)  bait pricing. 
E)  prestige pricing.

Question 13

A supermarket is bound to expect a higher stockturn for fresh fruits and vegetables compared to soaps and detergents.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following costs decrease with increase in output?

Accepted Answer

A)  Total variable cost 
B)  Total fixed cost 
C)  Total cost 
D)  Average fixed cost per unit 
E)  Sales commissions 
A)  Total variable cost 
B)  Total fixed cost 
C)  Total cost 
D)  Average fixed cost per unit 
E)  Sales commissions

Question 15

Some retailers commonly use prices that end in certain numbers. They seem to assume that their customers see prices with these numbers as substantially lower. This is:

Accepted Answer

A)  odd-even pricing. 
B)  demand-backward pricing. 
C)  leader pricing. 
D)  prestige pricing. 
E)  psychological pricing. 
A)  odd-even pricing. 
B)  demand-backward pricing. 
C)  leader pricing. 
D)  prestige pricing. 
E)  psychological pricing.

Question 16

The total fixed costs are $10,000, and the average variable cost per unit is $3. For a production volume of 10,000 units, the average cost per unit is

Accepted Answer

A)  $3. 
B)  $1. 
C)  $4. 
D)  $3.3. 
E)  $10 
A)  $3. 
B)  $1. 
C)  $4. 
D)  $3.3. 
E)  $10

Question 17

Regarding break-even analysis, a good marketing manager knows that:

Accepted Answer

A)  a high fixed-cost contribution per unit will lead to high profits. 
B)  assuming a straight-line total revenue curve incorrectly suggests that any quantity can be sold at the assumed price. 
C)  break-even analysis is useless for comparing pricing alternatives. 
D)  the usual straight-line total cost curve applies only when economies of scale exist. 
E)  All of the above are true. 
A)  a high fixed-cost contribution per unit will lead to high profits. 
B)  assuming a straight-line total revenue curve incorrectly suggests that any quantity can be sold at the assumed price. 
C)  break-even analysis is useless for comparing pricing alternatives. 
D)  the usual straight-line total cost curve applies only when economies of scale exist. 
E)  All of the above are true.

Question 18

Regarding "full-line pricing," which of the following statements is TRUE?

Accepted Answer

A)  A good marketing manager usually tries to price products in a line so that the prices will seem logically related and make sense to target customers. 
B)  The marketing manager should try to cover all costs on the whole product line. 
C)  Most customers seem to feel that prices in a product line should be somewhat related to cost. 
D)  Not all companies that make a line of products must use full-line pricing. 
E)  All of the above are true. 
A)  A good marketing manager usually tries to price products in a line so that the prices will seem logically related and make sense to target customers. 
B)  The marketing manager should try to cover all costs on the whole product line. 
C)  Most customers seem to feel that prices in a product line should be somewhat related to cost. 
D)  Not all companies that make a line of products must use full-line pricing. 
E)  All of the above are true.

Question 19

Average-cost pricing works well if the firm actually sells the quantity which was used in setting the price, but losses may result if actual sales are much higher than were expected--due to higher total variable costs.

Accepted Answer

A) True 
 B)False

Question 20

"Target return pricing":

Accepted Answer

A)  is a type of demand-oriented pricing. 
B)  is very different from average-cost pricing. 
C)  seeks to earn a percentage return on investment or a specific total dollar return. 
D)  guarantees that the target objective will be hit because the target return is included in the total cost. 
E)  All of the above. 
A)  is a type of demand-oriented pricing. 
B)  is very different from average-cost pricing. 
C)  seeks to earn a percentage return on investment or a specific total dollar return. 
D)  guarantees that the target objective will be hit because the target return is included in the total cost. 
E)  All of the above.

Demand estimates are required for demand-backward pricing to be successful.

Average-cost pricing consists of adding a 20 percent markup to the average cost of an item.

If a manager sells more than was expected when average-cost pricing was used to set a price, the firm will lose money.

The BEP, in units, can be found by dividing

A typical break-even analysis assumes that:

A major problem with average-cost pricing is that it does not allow for cost variations at different levels of output.

The markup approach to price setting used by most intermediaries:

As output increases, a firm's average fixed cost probably will go down.

A retailer of men's suits who is advertising a popular brand of dress shirts at a reduced price to attract customers is using:

A supermarket is bound to expect a higher stockturn for fresh fruits and vegetables compared to soaps and detergents.

Which of the following costs decrease with increase in output?

Some retailers commonly use prices that end in certain numbers. They seem to assume that their customers see prices with these numbers as substantially lower. This is:

The total fixed costs are $10,000, and the average variable cost per unit is $3. For a production volume of 10,000 units, the average cost per unit is

Regarding break-even analysis, a good marketing manager knows that:

Regarding "full-line pricing," which of the following statements is TRUE?

Average-cost pricing works well if the firm actually sells the quantity which was used in setting the price, but losses may result if actual sales are much higher than were expected--due to higher total variable costs.

"Target return pricing":

Marketings Value to Consumers, Firms, and Society

Marketing Strategy Planning

Evaluating Opportunities in the Changing Marketing Environment

Focusing Marketing Strategy With Segmentation and Positioning

Demographic Dimensions of Global Consumer Markets

Final Consumers and Their Buying Behavior

Business and Organizational Customers and Their Buying Behavior

Improving Decisions With Marketing Information

Elements of Product Planning for Goods and Services

Product Management and New-Product Development

Place and Development of Channel Systems

Distribution Customer Service and Logistics

Retailers,wholesalers,and Their Strategy Planning

Promotion-Introduction to Integrated Marketing Communications

Personal Selling and Customer Service

Advertising, Publicity, and Sales Promotion

Pricing Objectives and Policies

Implementing and Controlling Marketing Plans: Evolution and Revolution

Managing Marketings Link With Other Functional Areas

Ethical Marketing in a Consumer-Oriented World: Appraisal and Challenges

Economics Fundamentals

Marketing Arithmetic

Filters

Exam 18: Price Setting in the Business World

Demand estimates are required for demand-backward pricing to be successful.

Average-cost pricing consists of adding a 20 percent markup to the average cost of an item.

If a manager sells more than was expected when average-cost pricing was used to set a price, the firm will lose money.

The BEP, in units, can be found by dividing

A typical break-even analysis assumes that:

A major problem with average-cost pricing is that it does not allow for cost variations at different levels of output.

The markup approach to price setting used by most intermediaries:

As output increases, a firm's average fixed cost probably will go down.

A retailer of men's suits who is advertising a popular brand of dress shirts at a reduced price to attract customers is using:

A supermarket is bound to expect a higher stockturn for fresh fruits and vegetables compared to soaps and detergents.

Which of the following costs decrease with increase in output?

Some retailers commonly use prices that end in certain numbers. They seem to assume that their customers see prices with these numbers as substantially lower. This is:

The total fixed costs are $10,000, and the average variable cost per unit is $3. For a production volume of 10,000 units, the average cost per unit is

Regarding break-even analysis, a good marketing manager knows that:

Regarding "full-line pricing," which of the following statements is TRUE?

Average-cost pricing works well if the firm actually sells the quantity which was used in setting the price, but losses may result if actual sales are much higher than were expected--due to higher total variable costs.

"Target return pricing":

Marketings Value to Consumers, Firms, and Society

Marketing Strategy Planning

Evaluating Opportunities in the Changing Marketing Environment

Focusing Marketing Strategy With Segmentation and Positioning

Demographic Dimensions of Global Consumer Markets

Final Consumers and Their Buying Behavior

Business and Organizational Customers and Their Buying Behavior

Improving Decisions With Marketing Information

Elements of Product Planning for Goods and Services

Product Management and New-Product Development

Place and Development of Channel Systems

Distribution Customer Service and Logistics

Retailers,wholesalers,and Their Strategy Planning

Promotion-Introduction to Integrated Marketing Communications

Personal Selling and Customer Service

Advertising, Publicity, and Sales Promotion

Pricing Objectives and Policies

Implementing and Controlling Marketing Plans: Evolution and Revolution

Managing Marketings Link With Other Functional Areas

Ethical Marketing in a Consumer-Oriented World: Appraisal and Challenges

Economics Fundamentals

Marketing Arithmetic

Filters