Question 1

Marginal analysis

Accepted Answer

A)  assumes that the firm's total revenue curve is a straight line. 
B)  bases the analysis on the cost of the first few units sold. 
C)  explicitly considers demand when calculating price. 
D)  All of the above are correct. 
E)  None of the above is correct. 
A)  assumes that the firm's total revenue curve is a straight line. 
B)  bases the analysis on the cost of the first few units sold. 
C)  explicitly considers demand when calculating price. 
D)  All of the above are correct. 
E)  None of the above is correct.

Question 2

"Demand-backward pricing" involves a producer estimating an acceptable final consumer price and working backward to determine what the producer can charge in the channel.

Accepted Answer

A) True 
 B)False

Question 3

Customers are likely to be less price sensitive when:

Accepted Answer

A)  it is easy to compare prices. 
B)  someone else pays the bill. 
C)  the total expenditure is high. 
D)  there are substitutes available. 
E)  their share of the cost is high. 
A)  it is easy to compare prices. 
B)  someone else pays the bill. 
C)  the total expenditure is high. 
D)  there are substitutes available. 
E)  their share of the cost is high.

Question 4

A high stockturn rate:

Accepted Answer

A)  is only possible with a low markup percent. 
B)  is likely to result in low profits. 
C)  reduces the inventory investment and can improve profits. 
D)  increases the space needed for inventory. 
E)  None of the above is true. 
A)  is only possible with a low markup percent. 
B)  is likely to result in low profits. 
C)  reduces the inventory investment and can improve profits. 
D)  increases the space needed for inventory. 
E)  None of the above is true.

Question 5

Regarding pricing:

Accepted Answer

A)  the use of prestige and psychological pricing shows that most retailers do not consider demand when setting prices. 
B)  bait pricing tries to attract customers on the high end of a demand curve. 
C)  the FTC considers bait pricing a deceptive act and has banned its use in interstate commerce. 
D)  leader-priced items are priced very low to get customers into the store--not to sell these items. 
E)  All of the above are true. 
A)  the use of prestige and psychological pricing shows that most retailers do not consider demand when setting prices. 
B)  bait pricing tries to attract customers on the high end of a demand curve. 
C)  the FTC considers bait pricing a deceptive act and has banned its use in interstate commerce. 
D)  leader-priced items are priced very low to get customers into the store--not to sell these items. 
E)  All of the above are true.

Question 6

Cost-oriented approaches are the most common price setting approach.

Accepted Answer

A) True 
 B)False

Question 7

Regarding bid pricing:

Accepted Answer

A)  the same overhead charges and profit rates should apply to all bids--to avoid legal problems. 
B)  most firms should try to bid for as many jobs as possible--to spread risk. 
C)  all business buyers are legally required to accept the lowest bid--if they ask for bids. 
D)  the big problem for sellers is estimating all the costs--including the variable and fixed costs--that apply to a particular job. 
E)  All of the above are true. 
A)  the same overhead charges and profit rates should apply to all bids--to avoid legal problems. 
B)  most firms should try to bid for as many jobs as possible--to spread risk. 
C)  all business buyers are legally required to accept the lowest bid--if they ask for bids. 
D)  the big problem for sellers is estimating all the costs--including the variable and fixed costs--that apply to a particular job. 
E)  All of the above are true.

Question 8

Most firms in the business world set their prices using:

Accepted Answer

A)  federal price guidelines. 
B)  demand-oriented price setting. 
C)  cost-oriented price setting. 
D)  supply and demand analysis. 
E)  marginal analysis. 
A)  federal price guidelines. 
B)  demand-oriented price setting. 
C)  cost-oriented price setting. 
D)  supply and demand analysis. 
E)  marginal analysis.

Question 9

Regarding a producer's cost structure:

Accepted Answer

A)  marginal cost begins to rise at a lower level of output than average cost. 
B)  total fixed costs increase continuously as more units are produced. 
C)  average cost is the extra cost of producing one more unit. 
D)  average costs usually drop for awhile and then start to rise when the economies of scale "run out." 
E)  Both A and D are true. 
A)  marginal cost begins to rise at a lower level of output than average cost. 
B)  total fixed costs increase continuously as more units are produced. 
C)  average cost is the extra cost of producing one more unit. 
D)  average costs usually drop for awhile and then start to rise when the economies of scale "run out." 
E)  Both A and D are true.

Question 10

With complementary product pricing, different price levels are set on different products because the products are targeted at different market segments.

Accepted Answer

A) True 
 B)False

Question 11

Spruce Pine Mfg. Co. has total fixed costs of $300,000 a year. The owner estimates that average variable costs for its product will be about $30 next year. The selling price to wholesalers will be $50. The break-even point is:

Accepted Answer

A)  6,000 units. 
B)  10,000 units. 
C)  12,000 units. 
D)  15,000 units. 
E)  None of the above is correct. 
A)  6,000 units. 
B)  10,000 units. 
C)  12,000 units. 
D)  15,000 units. 
E)  None of the above is correct.

Question 12

Marginal analysis

Accepted Answer

A)  reveals the range of prices that should be profitable. 
B)  can be used to set prices, but it does not give you any idea what quantity might be sold at that price. 
C)  is not applicable to oligopoly situations. 
D)  All of the above are true. 
E)  None of the above is true. 
A)  reveals the range of prices that should be profitable. 
B)  can be used to set prices, but it does not give you any idea what quantity might be sold at that price. 
C)  is not applicable to oligopoly situations. 
D)  All of the above are true. 
E)  None of the above is true.

Question 13

_____ are costs that a customer faces by buying a product that is different from what has been purchased or used in the past.

Accepted Answer

A)  Marginal costs 
B)  First-mover costs 
C)  Switching costs 
D)  Pioneering costs 
E)  Opportunity costs 
A)  Marginal costs 
B)  First-mover costs 
C)  Switching costs 
D)  Pioneering costs 
E)  Opportunity costs

Question 14

Break-even analysis is particularly accurate because it recognizes that the demand curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 15

Given the following data, determine the break-even point in units: Total fixed cost = $120,000
Variable cost per unit = $0.60
Selling price per unit = $1.10

Accepted Answer

A)  100,000 
B)  240,000 
C)  200,000 
D)  218,182 
E)  50,000 
A)  100,000 
B)  240,000 
C)  200,000 
D)  218,182 
E)  50,000

Question 16

Average-cost pricing

Accepted Answer

A)  always results in a profit that is less than what was expected. 
B)  will work out as expected when the firm's actual average fixed cost per unit is what was estimated when prices were set. 
C)  sets the price at the point where average fixed cost is equal to average variable cost. 
D)  ignores variable costs. 
E)  is the only way to ensure that the firm will set a profitable price. 
A)  always results in a profit that is less than what was expected. 
B)  will work out as expected when the firm's actual average fixed cost per unit is what was estimated when prices were set. 
C)  sets the price at the point where average fixed cost is equal to average variable cost. 
D)  ignores variable costs. 
E)  is the only way to ensure that the firm will set a profitable price.

Question 17

Average-cost pricing

Accepted Answer

A)  will result in disappointing profits when the firm sells more than it expected to sell. 
B)  will never lead to a higher than expected profit. 
C)  takes the demand curve into account when calculating a price. 
D)  is most likely to result in the expected level of profit when demand is inelastic within the range of possible prices. 
E)  All of the above are true. 
A)  will result in disappointing profits when the firm sells more than it expected to sell. 
B)  will never lead to a higher than expected profit. 
C)  takes the demand curve into account when calculating a price. 
D)  is most likely to result in the expected level of profit when demand is inelastic within the range of possible prices. 
E)  All of the above are true.

Question 18

Consider the following demand schedule for a product:   As the quantity demanded/sold increases from 3 units to 4 units, what is the marginal revenue?

Accepted Answer

A)  $25. 
B)  $50. 
C)  $750. 
D)  $900. 
E)  $150. 
A)  $25. 
B)  $50. 
C)  $750. 
D)  $900. 
E)  $150.

Question 19

The practice of setting different price levels for different quality classes of merchandise--with no prices between the classes--is called:

Accepted Answer

A)  full-line pricing. 
B)  prestige pricing. 
C)  price lining. 
D)  odd-even pricing. 
E)  psychological pricing. 
A)  full-line pricing. 
B)  prestige pricing. 
C)  price lining. 
D)  odd-even pricing. 
E)  psychological pricing.

Question 20

High markups always mean big profits.

Accepted Answer

A) True 
 B)False

Exam 18: Price Setting in the Business World

Marginal analysis

"Demand-backward pricing" involves a producer estimating an acceptable final consumer price and working backward to determine what the producer can charge in the channel.

Customers are likely to be less price sensitive when:

A high stockturn rate:

Regarding pricing:

Cost-oriented approaches are the most common price setting approach.

Regarding bid pricing:

Most firms in the business world set their prices using:

Regarding a producer's cost structure:

With complementary product pricing, different price levels are set on different products because the products are targeted at different market segments.

Spruce Pine Mfg. Co. has total fixed costs of $300,000 a year. The owner estimates that average variable costs for its product will be about $30 next year. The selling price to wholesalers will be $50. The break-even point is:

Marginal analysis

_____ are costs that a customer faces by buying a product that is different from what has been purchased or used in the past.

Break-even analysis is particularly accurate because it recognizes that the demand curve is downward sloping.

Given the following data, determine the break-even point in units: Total fixed cost = $120,000 Variable cost per unit = $0.60 Selling price per unit = $1.10

Average-cost pricing

Average-cost pricing

Consider the following demand schedule for a product: As the quantity demanded/sold increases from 3 units to 4 units, what is the marginal revenue?

The practice of setting different price levels for different quality classes of merchandise--with no prices between the classes--is called:

High markups always mean big profits.

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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