Exam 17: Price Setting in the Business World

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

A firm that sets prices such that consumers will save 15% of their fuel costs by buying its products is employing _____.

The greater the total expenditure, the less price sensitive customers are.

When Walgreens Drugstore advertises one price for the cost of a roll of film and the cost of processing it, it is using

Customers tend to be more price sensitive

Walgreens Drugstores advertises that its Tylenol prices are "the lowest in town" in order to stimulate sales of other products along with Tylenol. This is an example of:

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?

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:

Marginal cost is:

A firm with a stockturn rate of 5 that sells products that cost it $150,000 per year is keeping an average of _____ worth of inventory.

High markups on a product could lead to low profits when

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

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

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

"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.

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:

A producer incurred costs of $54,000 for labor and materials and $26,000 for fixed overhead expenses in a year. The firm produced 20,000 units during the year. If the producer desires a profit of $1 per unit in the coming year, what should the producer's selling price be using average-cost pricing?

You are considering opening a fast-food store. Your fixed costs for the required land, building, parking lot paving, kitchen equipment, and neon sign will be $1,000,000. The variable cost will be $1.89 for servings which will sell for $2.89. How many servings must you sell to break even?

When customers have to pay the bill themselves, they are likely to be more price sensitive.

A major difference between leader pricing and bait pricing is that bait pricing is criticized as unethical while leader pricing is not.