Question 1

_________ refers to the change in total revenue that results from the sale of one more unit of a product.

Accepted Answer

A)  Total revenue 
B)  Marginal revenue 
C)  Average revenue 
D)  Diminishing revenue 
E)  Economies of scale 
A)  Total revenue 
B)  Marginal revenue 
C)  Average revenue 
D)  Diminishing revenue 
E)  Economies of scale

Question 2

In a typical break-even analysis, a firm's fixed-cost contribution per unit:

Accepted Answer

A)  is the assumed selling price per unit minus the variable cost per unit. 
B)  is the assumed selling price per unit minus the average fixed cost. 
C)  usually decreases as the quantity produced increases. 
D)  is total fixed cost divided by the quantity produced. 
E)  usually increases as the quantity produced increases. 
A)  is the assumed selling price per unit minus the variable cost per unit. 
B)  is the assumed selling price per unit minus the average fixed cost. 
C)  usually decreases as the quantity produced increases. 
D)  is total fixed cost divided by the quantity produced. 
E)  usually increases as the quantity produced increases.

Question 3

Leader pricing is typically used with well-known, widely used items which are not stocked heavily by consumers.

Accepted Answer

A) True 
 B)False

Question 4

The break-even point is the intersection of the total cost curve and the total profit curve.

Accepted Answer

A) True 
 B)False

Question 5

Prestige pricing is most common for luxury products such as furs, jewelry, and perfume.

Accepted Answer

A) True 
 B)False

Question 6

The sequence of markups firms use at different levels in a channel is referred to as a(n)

Accepted Answer

A)  market sequence. 
B)  markup chain. 
C)  markup margin. 
D)  standard markup. 
E)  markup channel. 
A)  market sequence. 
B)  markup chain. 
C)  markup margin. 
D)  standard markup. 
E)  markup channel.

Question 7

A regional manager for a chain of auto parts stores visits one of the stores in the chain. He looks in the store's warehouse and finds about 100 cases of motor oil that have been sitting in the warehouse for over one year. Upon inspection, he finds that in each case, one of the twelve cans of oil has leaked, thus soaking through the box and making the case unfit for sale. The regional manager instructs the store manager to unpack all of the cases, discard the leaking cans, clean up the remaining cans, and to contact the oil company for new boxes. He tells the store manager to repackage the remaining cans in the new boxes and to sell the cases to customers at the retailer's cost with no added markup. He explains to the store manager that moving this inventory will not result in immediate profit, but that it will benefit the store by improving the:

Accepted Answer

A)  Markup. 
B)  Markup rate. 
C)  Markup percent. 
D)  Stockturn rate. 
E)  Break-even point. 
A)  Markup. 
B)  Markup rate. 
C)  Markup percent. 
D)  Stockturn rate. 
E)  Break-even point.

Question 8

Product-bundle pricing may encourage customers to spend more and buy products that they would not buy otherwise.

Accepted Answer

A) True 
 B)False

Question 9

The Horizons Cycle Shop bought 3 motorcycles for $2,100, and sold each one for $1,000. The markup percent was:

Accepted Answer

A)  33 1/3. 
B)  30. 
C)  142. 
D)  50. 
E)  There is not enough information to tell. 
A)  33 1/3. 
B)  30. 
C)  142. 
D)  50. 
E)  There is not enough information to tell.

Question 10

If a company had $150,000 invested and wanted to make a 10 percent return on investment, it would add _____ to its annual total costs in setting prices using the target return pricing method.

Accepted Answer

A)  $10,000 
B)  $20,000 
C)  $150,000 
D)  $15,000 
E)  $1,500 
A)  $10,000 
B)  $20,000 
C)  $150,000 
D)  $15,000 
E)  $1,500

Question 11

Average fixed costs are lower when a large quantity is produced.

Accepted Answer

A) True 
 B)False

Question 12

It costs a producer $400 to manufacture a product that is distributed through wholesalers and retailers. The markups at the producer, wholesaler, and retailer levels are 20%, 20% and 50%, respectively. The wholesaler's selling price for the product is __________, and the retailer's selling price is: ___________.

Accepted Answer

A)  $625; $1250 
B)  $576; $864 
C)  $480; 576 
D)  $500; $625 
E)  Cannot be determined from the information provided 
A)  $625; $1250 
B)  $576; $864 
C)  $480; 576 
D)  $500; $625 
E)  Cannot be determined from the information provided

Question 13

At the point where marginal revenue (MR) equals marginal cost (MC), marginal profit is near zero.

Accepted Answer

A) True 
 B)False

Question 14

Some consumers maintain a "price-quality association," meaning that if a product has a high price, they assume the product must have high quality. This "price-quality association" is the basis for the use of:

Accepted Answer

A)  Odd-even pricing. 
B)  Prestige pricing. 
C)  Leader pricing. 
D)  Reference pricing. 
E)  Price lining. 
A)  Odd-even pricing. 
B)  Prestige pricing. 
C)  Leader pricing. 
D)  Reference pricing. 
E)  Price lining.

Question 15

Identify a disadvantage of break-even analysis.

Accepted Answer

A)  It is not possible to include a target profit in this method. 
B)  It is not helpful for evaluating what might happen to profits in different market environments. 
C)  It does not consider the effect of price on the quantity that consumers will want. 
D)  It is not helpful for evaluating alternatives. 
E)  It is an extremely complicated method. 
A)  It is not possible to include a target profit in this method. 
B)  It is not helpful for evaluating what might happen to profits in different market environments. 
C)  It does not consider the effect of price on the quantity that consumers will want. 
D)  It is not helpful for evaluating alternatives. 
E)  It is an extremely complicated method.

Question 16

Which of the following observations is true?

Accepted Answer

A)  Marginal analysis does not apply in oligopoly situations. 
B)  Marginal revenue drops fast in an oligopoly, at the kinked point. 
C)  In an oligopoly, setting the price at the level of the kink minimizes profit. 
D)  In an oligopoly, prices are relatively less "sticky" at the kinked point. 
E)  Price leadership does not occur in oligopoly situations. 
A)  Marginal analysis does not apply in oligopoly situations. 
B)  Marginal revenue drops fast in an oligopoly, at the kinked point. 
C)  In an oligopoly, setting the price at the level of the kink minimizes profit. 
D)  In an oligopoly, prices are relatively less "sticky" at the kinked point. 
E)  Price leadership does not occur in oligopoly situations.

Question 17

Mark is trying to determine his firm's average cost per unit of production. He finds that the cost for all labor and materials is $80,000 and fixed overhead expenses are $40,000. If the company produces 20,000 items in the time period, the average cost is

Accepted Answer

A)  $12. 
B)  $2. 
C)  $6. 
D)  $4. 
E)  $10. 
A)  $12. 
B)  $2. 
C)  $6. 
D)  $4. 
E)  $10.

Question 18

A markup chain:

Accepted Answer

A)  only applies to consumer products, not to business products. 
B)  implies that a retailer must always apply a smaller markup than a wholesaler. 
C)  causes lower prices in longer channel systems. 
D)  determines the price structure in a channel of distribution. 
E)  None of the above is true. 
A)  only applies to consumer products, not to business products. 
B)  implies that a retailer must always apply a smaller markup than a wholesaler. 
C)  causes lower prices in longer channel systems. 
D)  determines the price structure in a channel of distribution. 
E)  None of the above is true.

Question 19

Regarding markups and turnover:

Accepted Answer

A)  high markups usually lead to high profits. 
B)  speeding turnover usually decreases profits. 
C)  items sold at low markups (e.g., 20 percent) cannot be profitable. 
D)  depending on the industry--a stockturn rate of 1 or 2 may be quite profitable. 
E)  All of the above. 
A)  high markups usually lead to high profits. 
B)  speeding turnover usually decreases profits. 
C)  items sold at low markups (e.g., 20 percent) cannot be profitable. 
D)  depending on the industry--a stockturn rate of 1 or 2 may be quite profitable. 
E)  All of the above.

Question 20

Komatsu Mfg. Co. uses target return pricing and expects to sell 40,000 units of its product in the coming year. Its fixed costs will be $500,000 and its variable costs will be about $20 per unit. If Komatsu seeks to earn a 20 percent return on its investment of $500,000, what price should it charge?

Accepted Answer

A)  $35.00 
B)  $32.50 
C)  $21.00 
D)  $22.50 
E)  $20.00 
A)  $35.00 
B)  $32.50 
C)  $21.00 
D)  $22.50 
E)  $20.00

Exam 18: Price Setting in the Business World

_________ refers to the change in total revenue that results from the sale of one more unit of a product.

In a typical break-even analysis, a firm's fixed-cost contribution per unit:

Leader pricing is typically used with well-known, widely used items which are not stocked heavily by consumers.

The break-even point is the intersection of the total cost curve and the total profit curve.

Prestige pricing is most common for luxury products such as furs, jewelry, and perfume.

The sequence of markups firms use at different levels in a channel is referred to as a(n)

Product-bundle pricing may encourage customers to spend more and buy products that they would not buy otherwise.

The Horizons Cycle Shop bought 3 motorcycles for $2,100, and sold each one for $1,000. The markup percent was:

If a company had $150,000 invested and wanted to make a 10 percent return on investment, it would add _____ to its annual total costs in setting prices using the target return pricing method.

Average fixed costs are lower when a large quantity is produced.

At the point where marginal revenue (MR) equals marginal cost (MC), marginal profit is near zero.

Some consumers maintain a "price-quality association," meaning that if a product has a high price, they assume the product must have high quality. This "price-quality association" is the basis for the use of:

Identify a disadvantage of break-even analysis.

Which of the following observations is true?

Mark is trying to determine his firm's average cost per unit of production. He finds that the cost for all labor and materials is $80,000 and fixed overhead expenses are $40,000. If the company produces 20,000 items in the time period, the average cost is

A markup chain:

Regarding markups and turnover:

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

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