Exam 17: Price Setting in the Business World

Best Buy sets its prices below other electronics stores in its service area and generally attracts more customers than the others. Best Buy apparently hopes to earn a profit by

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

Which of the following is a TRUE statement about markups?

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

An item costs a retailer $140. If a 30 percent markup is desired, what should the retail selling price be?

A firm's average fixed cost increases as its output increases.

Alex's Knot Shop prices its ties at $5 intervals from $10 to $25 because most customers find these prices appealing and easier to compare. This is:

Value in use pricing considers what a customer will save by buying a product.

Average-cost pricing works best in situations where demand conditions do not change a lot.

Some retailers feel that their potential customers find certain prices appealing, but between these prices the customers see prices as roughly the same--and thus price cuts within these ranges will not increase the quantity sold (i.e., the demand curve is vertical within these "same price" ranges). These retailers would probably use ______________ if they want to maximize profit.

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

Average-cost pricing means adding a reasonable markup to the total cost of a product.

A producer with only one product has total fixed costs of $15,000 per month. In addition, it cost the producer $100 in variable costs to produce each unit of his product (raw materials and direct labor cost). The producer charges his wholesalers $125 per unit. How many units of the product does the producer have to sell each month in order to break even?

High markups always mean big profits.

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:

Value in use pricing

A college "marketing club" printed 1,000 "We're Number 1" bumper stickers for sale at $3.00 each as a fund-raiser. Its fixed costs were $500, and the variable cost for each sticker was $.50. The club's average cost per unit was:

It makes sense for a manager to use leader pricing on a product only if consumers are unlikely to be aware of the normal price.

A producer sells an item to a wholesaler for $4.00, and the wholesaler uses a markup of 25 percent on its selling price and the retailer uses a markup of 30 percent on its selling price. What will be the retailer's selling price to its customers?

Sequential price reductions and clearance sales are the same thing.