Exam 17: Pricing Concepts

_____ occurs when an increase in sales exactly offsets a decrease in price so that total revenue remains exactly the same.

During sporting events at the local high school,Ashanti runs a concession stand.The costs associated with the purchase of hot dogs,mustard,relish,ketchup,chips,sodas,paper napkins,and cups are all examples of _____ costs.

SCENARIOS Continental Lite In the mid-1990s,Continental Airlines chose to compete head-on with Southwest Airlines by launching Continental Lite,an alternative low-fare commercial airline passenger operation.Top executives at Continental had expected its no-frills operation to break even within a year of its inception,but the airline fell short of the goal.A source close to the company explained it by saying,"Its costs were too high,and its revenues were too low." Some observers criticized Continental's marketing efforts.When the no-frills service was first launched,it lacked a distinct name or identity,missing its chance to make a splash.Then Continental tried to sell three "brands" at once--Lite,a new premium service,and its more traditional long-haul domestic flights.As one rival expressed it,"You cannot be all things to all people." -Refer to Specialty Cakes.Many party planners in the Southeast will only use Cecilia Villaveces Cakes at their parties--no matter what the price is.They know that Cecilia's cakes can make a party a success.Moreover,the cakes are what people remember most about the parties.From this description,you should assume Cecilia Villaveces Cakes have a(n):

Maximization of sales is an appropriate and useful long-term pricing objective for most firms.

Which of the following statements describes an advantage of status quo pricing?

SCENARIOS Continental Lite In the mid-1990s,Continental Airlines chose to compete head-on with Southwest Airlines by launching Continental Lite,an alternative low-fare commercial airline passenger operation.Top executives at Continental had expected its no-frills operation to break even within a year of its inception,but the airline fell short of the goal.A source close to the company explained it by saying,"Its costs were too high,and its revenues were too low." Some observers criticized Continental's marketing efforts.When the no-frills service was first launched,it lacked a distinct name or identity,missing its chance to make a splash.Then Continental tried to sell three "brands" at once--Lite,a new premium service,and its more traditional long-haul domestic flights.As one rival expressed it,"You cannot be all things to all people." -Refer to the American Girl Doll.American Girl is the primary seller of historically accurate dolls with accompanying books in a market where there is very little competition.It has no cash flow problems and is not interested in maximizing its sales.From this information,you should know American Girl has _____ pricing objectives.

Chulo Ibsen makes and sells hand-forged wrought iron fireplace screens for $125 each.He has determined that his fixed costs are $8,000,and his variable costs per firescreen are $45.What is his break-even point in units?

If the formula for elasticity results in a measure of elasticity (E)equal to 1,the increase in sales exactly offsets the decrease in price so that total revenue remains the same.

Dosta Mattress Company manufactures and sells mattresses to retailers who then put their own store brand names on the product.At a price of $100,it sold 100 mattresses.It dropped its price to $60 and sold 175 mattresses.Regarding elasticity,demand for the mattresses is:

SCENARIOS Continental Lite In the mid-1990s,Continental Airlines chose to compete head-on with Southwest Airlines by launching Continental Lite,an alternative low-fare commercial airline passenger operation.Top executives at Continental had expected its no-frills operation to break even within a year of its inception,but the airline fell short of the goal.A source close to the company explained it by saying,"Its costs were too high,and its revenues were too low." Some observers criticized Continental's marketing efforts.When the no-frills service was first launched,it lacked a distinct name or identity,missing its chance to make a splash.Then Continental tried to sell three "brands" at once--Lite,a new premium service,and its more traditional long-haul domestic flights.As one rival expressed it,"You cannot be all things to all people." -Refer to the American Girl Doll.In terms of producing the dolls and its accessories,the calico fabric used to make Kristen's dress is an example of a:

Consumers use price as an indicator of the quality of a product,especially when consumers have a substantial degree of knowledge about the product.

The point at which marginal cost and marginal revenue are equal always results in:

In a discount store Lee found a "sun kit" containing a beach towel,a sun visor,and suntan lotion.The items,which were sold together,retailed at $18.50,but were marked down to $12.99.The retailer sold one for $18.50 and six at the $12.99.Demand for the sun kit package is:

Yield management systems are used to:

Critics claim bank ATMs take advantage of the _____ of customers who suffer a poverty of time and have a strong need for convenience.

Calculate answers for the following scenarios:

Yield management systems can only be used by service industries.

What is the difference between fixed and variable costs? Give examples of each type of cost.

Procter & Gamble dropped the price of Pringle Potato Chips in the Southeast due to price competition and consumer demand.As a result of the price reduction,Procter & Gamble increased unit sales and earnings by 10 percent due to:

Variable costs vary with changes in the level of output,whereas marginal costs do not vary as output changes.