Deck 19: Pricing Concepts

Question 1

Yield management systems can only be used by service industries.

Answer 1

False
As the popularity of yield management systems increases,their use is spreading to manufacturing (in terms of production capacity).

Question 2

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

Answer 2

False
Marginal costs are the changes in total costs associated with a one-unit change in output.

Question 3

Maximization of cash should be a long-term objective.

Answer 3

False
Maximization of cash should never be a long-run objective because cash maximization may mean little or no profitability.Without profits,a company cannot survive.

Question 4

The owner of Buffalo Mountain Coffee Shop pays the same amount in rent each month no matter how many customers she serves.The shop owner's rent is an example of a marginal cost.

Question 5

Target return on investment is the most common profit objective used by firms.

Question 6

Price is defined as the perceived value of a good or service that is exchanged for a certain dollar amount.

Question 7

Research indicates that when a country's inflation rate is high,demand becomes more elastic.

Question 8

Today's firms must develop specific,measurable,and attainable pricing objectives if they hope to survive in highly competitive markets.

Question 9

When pricing goals are mainly sales oriented,cost considerations usually dominate.

Question 10

When many substitute products are available,demand is inelastic.

Question 11

A lack of pricing power means that when a company tries to raise its prices,it loses sales volume as customers shift to low cost competitors or find a substitute product.

Question 12

Profit maximization is the price at which supply and demand are equal,and there is no inclination for prices to rise or fall.

Question 13

Profit is the price charged to customers multiplied by the number of units sold.

Question 14

Markup pricing,adding an amount to cost to cover expenses and profit,is one of the most common pricing methods used by intermediaries to establish a selling price.

Question 15

In most communities,the price of gas is more or less the same at all area service stations.This is an example of sales-oriented pricing.

Question 16

Market share is a company's product sales as a percentage of its total sales for that industry.

Question 17

If the formula for elasticity results in a measure of elasticity (E)greater than 1,demand is said to be inelastic.

Question 18

If demand for milk is inelastic,consumers will not change their purchasing habits greatly when the price of milk changes.

Question 19

Firms that price their products solely on the basis of costs are adhering to the marketing concept.

Question 20

The only way to maximize profits is to reduce costs by operating more efficiently.

Question 21

Revenue:

A) equals quantity sold times profit margin
B) equals price minus costs
C) equals return on investment
D) is synonymous with profit
E) equals price of goods times quantity sold

Question 22

At Walmart,Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer.The items,which were sold together,retailed at $28.50,but were marked down to $19.99.The $19.99 is the:

A) revenue
B) price
C) profit
D) liquidity value
E) amortized value

Question 23

Break-even analysis determines what sales volume must be reached for a product before the company's total revenue equals total costs.

Question 24

High purchase prices may create feelings of pleasure and excitement in consumers.

Question 25

Money that is left over after paying for company activities is called:

A) return on investment
B) a contribution margin
C) profit
D) net worth
E) a current asset

Question 26

_____ pay for every activity of the company.

A) Revenues
B) Investments
C) Retained earnings
D) Profits
E) Prices

Question 27

The manufacturers that remain in the market toward the end of the maturity stage typically offer similar prices.

Question 28

If a shopping bot steers you to an exceptionally low price,you should suspect Internet fraud.

Question 29

Price is best described as:

A) that which is given up in exchange to acquire a good or service
B) money exchanged for a good or service
C) the psychological results of purchasing
D) the cost in dollars for a good or service as set by the producer
E) the value of a barter good in an exchange

Question 30

Adequate distribution for a new product is often obtained by reducing the size of the profit margin for its resellers.

Question 31

The B2B Internet auction world is shifting from using warranties,delivery dates,and financing options as bargaining chips to haggling over prices.

Question 32

At Walmart,Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer.The items,which were sold together,retailed at $28.50,but were marked down to $19.99.The retailer sold one at the $28.50 price and five at the $19.99.The retailer's revenue is:

A) $8.51
B) $19.99
C) $28.50
D) $128.45
E) $171.00

Question 33

Price should not be used as a promotional tool.

Question 34

Prices always steadily decline for a product in the decline stage of the product life cycle.

Question 35

As products enter the growth stage of the product life cycle,prices generally begin to stabilize.

Question 36

Research has shown that products that are perceived to be of high quality tend to benefit less from price promotions than products perceived to be of lower quality.

Question 37

All of the following statements about price are true EXCEPT:

A) Price can relate to anything with perceived value,not just money.
B) Price is that which is given up in an exchange to acquire a product.
C) Price means the same thing to the consumer and the seller.
D) The price paid is based on the satisfaction consumers expect to receive from a product.
E) Customers are interested in obtaining a perceived reasonable price.

Question 38

When goods and services are exchanged,the trade is called:

A) exchange
B) substitution
C) barter
D) swap
E) bargaining

Question 39

When a retailer offers a price-matching guarantee,it is signaling to the target market that it is positioned as a low-price dealer.

Question 40

A firm has maximized its profits when its marginal revenue exceeds its marginal cost.

Question 41

An organization is using _____ when it sets its prices so that total revenue is as large as possible relative to total costs.

A) profit maximization
B) market share pricing
C) demand-oriented pricing
D) sales maximization
E) status quo pricing

Question 42

For convenience,pricing objectives can be divided into three categories.They are:

A) refundable,competitive,and attainable
B) perceived,actual,and unique-situational
C) differentiated,niche,and undifferentiated
D) profit oriented,sales oriented,and status quo
E) monopolistic,fixed,and variable

Question 43

Thompson Pool and Patio is known for quality pool installations,excellent customer service,and reasonable prices.If you want to have a Thompson pool you will have to wait about six months due to demand for their product.While Thompson could probably price their product higher,given the demand,they don't.Instead,they set price so that they earn a reasonable level of profits.This company seems to base its pricing policy on:

A) profit maximization
B) earning satisfactory profits
C) creating retained earnings
D) making the most money as possible
E) decreasing consumer demand

Question 44

At the end of the summer,the Bloomin' Garden Center reduced the price on all of its plants,fertilizer,and potting soil by 50 percent in order to liquidate this inventory.What type of pricing strategy is being used in this example?

A) supply oriented
B) sales maximization
C) target return on investment
D) satisfactory profit
E) profit maximization

Question 45

_____ is a company's product sales as a percentage of total sales for that industry.

A) Return on investment
B) Profit share
C) Revenue share
D) Market share
E) Contribution

Question 46

When Insight Research Associates quotes a marketing research project,management will first estimate the cost to conduct the research and produce and deliver the final client report.The next step in determining the price is to add 30% to that cost estimate.This becomes the price estimate given to the potential research client.This suggests that Insight Research Associates uses a(n)_____ pricing objective.

A) profit-oriented
B) market share maximization
C) status quo
D) sales maximization
E) supply-demand equalization

Question 47

Why are marketing managers finding it more difficult to set prices in today's environment?

A) Inflationary and recessionary periods have made customers less price-sensitive.
B) Fewer dealer and generic brands are available because the competition has been eliminated.
C) The high rate of new-product introductions has led to careful reevaluation by consumers.
D) Marketing managers are finding it difficult to compare prices between suppliers.
E) Buyers are less informed and are less price-sensitive.

Question 48

When Apple Inc.originally introduced its iPhone it was priced at what many believed to be about as high as the market would allow.Within weeks Apple lowered the price of the iPhone.It appears that Apple Inc.entered the market with a _____ approach to pricing the iPhone.

A) market share pricing
B) profit maximization
C) demand-oriented
D) sales maximization
E) status quo pricing

Question 49

If a company's pricing objective is to meet the competition or to maintain existing prices,it is using _____ pricing.

A) head-on
B) target return on investment
C) status quo
D) market share
E) demand-oriented

Question 50

At a price of $1,192,057,the Bugatti Veyron may be the most expensive street legal car currently on the market today.Obviously,Bugatti is NOT using a _____ pricing objective in setting the price for this car.

A) inelastic or supply-oriented
B) market share or sales maximization
C) profit maximization or target return on investment
D) status quo or satisfactory profits
E) demand-oriented or supply-oriented

Question 51

_____ is equal to net profit after taxes divided by total assets.

A) Return on investment
B) Economic order quantity
C) Target-on-sales
D) Retained earnings
E) Efficiency maximization

Question 52

Dixie Furniture Company has recently moved to a new,larger location.At this new location,it has been unable to attract sufficient customers.Its owner does not have the cash to pay the current loan installment due on the building and inventory so he decided to reduce all merchandise prices by at least 50 percent for a weekend sale to earn enough to make his loan payment.His pricing objective can be classified as:

A) market share maximization
B) satisfactory profits
C) asset maximization
D) sales maximization
E) target ROI

Question 53

A company using market share pricing has a _____ pricing objective.

A) profit-oriented
B) sales-oriented
C) demand-oriented
D) supply-oriented
E) status quo

Question 54

As a short-term pricing objective,_____ can be effectively used on a temporary basis to sell off excessive inventory.

A) profit maximization
B) profit-oriented pricing
C) status quo pricing
D) sales maximization
E) market share pricing

Question 55

The quantity of a product that will be sold at various prices for a specified period is called:

A) market share
B) demand
C) supply
D) value
E) revenue

Question 56

When the local Shell station raises or lowers its prices on its gasoline,the Marathon station across the street makes the same changes in its pricing.This is an example of _____ pricing.

A) status quo
B) target return
C) market share
D) predatory
E) cost-plus

Question 57

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

A) Status quo pricing is derived from actual costs of manufacturing.
B) Status quo pricing maintains the organization's differential advantage.
C) Status quo pricing is active,not reactive.
D) Status quo pricing causes price wars.
E) Status quo pricing requires little planning.

Question 58

Britney is fifteen years old and wants to open her own business selling cupcakes to local coffee shops and restaurants.She is having a tough time deciding whether to base her pricing objectives on market share,dollar sales,or unit sales.Regardless of which she chooses,her pricing objective can be categorized as:

A) status quo
B) profit oriented
C) need oriented
D) cost oriented
E) sales oriented

Question 59

Pierre's Ice Cream Company produces ultra-rich ice cream,which it sells in the Cleveland,Ohio area.Last year,it managed to exceed its target return on investment (ROI)for the current fiscal year.The following results were found on its financial statements:
$\begin{array}{lrll}\text { Gross Revenues: } & \$ 250,000 & \text { Total Assets: } & \$ 500,000 \\\text { Gross Profits: } & \$ 100,000 & \text { Total Liabilities: } & \$ 200,000 \\\text { Net Profits after Tax: } & \$ 50,000 & \text { Owner's Equity: } & \$ 300,000\end{array}$
What was the actual ROI for Pierre's Ice Cream Company?

A) 6.67 percent
B) 10 percent
C) 22 percent
D) 28 percent
E) 100 percent

Question 60

Although many factors can influence price,the primary determinants are:

A) costs of manufacturing and distribution
B) the demand for the good and the cost to the seller
C) demand by the consumer and perceived quality
D) distribution and promotion strategies
E) stage of the product life cycle and costs to the consumer

Question 61

Demand for which of the following products or services is most likely inelastic?

A) fishing boats
B) milk
C) pedicures
D) filet mignon steak
E) digital cameras

Question 62

When Nesco brand food hydrators sold for $59.99,Nesco sold 90 dehydrators.When the company dropped the price of its dehydrators to $44.95,it sold 145 dehydrators.Demand for the food dehydrators appears to be:

A) elastic
B) inelastic
C) unitary
D) symmetrical
E) asymmetrical

Question 63

When consumers are sensitive to price changes,_____ occurs.

A) inelastic demand
B) elastic supply
C) elastic demand
D) inelastic supply
E) unitary elasticity

Question 64

Most demand curves slope:

A) horizontally
B) upward and to the right
C) downward and to the left
D) vertically
E) downward and to the right

Question 65

When the price of a product is set at a level where demand and supply are the same,_____ has been achieved.

A) equilibrium
B) stability
C) leverage
D) symmetry
E) status quo

Question 66

_____ is the quantity of a product that will be offered to the market at various prices for a specified period.

A) Distribution
B) Supply
C) Price
D) Equilibrium
E) Elasticity

Question 67

Peggy's Twist Shack sells soft-serve ice cream.Peggy graphed the demand per week for vanilla ice cream cones.The graph indicates a demand schedule that slopes downward and to the right.This graph indicates that the quantity of vanilla ice cream cones demanded increases as:

A) cost increases
B) supply decreases
C) price increases
D) price decreases
E) supply increases

Question 68

At a price of $6,000,only 191 of the Moulton 60 model bicycle are being made.If Moulton sells each one of the bicycles at that price,then a state of _____ has been achieved.

A) symmetry
B) marketing balance
C) unitary economics
D) commerce stability
E) price equilibrium

Question 69

What happens when demand is elastic?

A) As price goes up,revenue goes down.
B) As price goes down,revenue goes down.
C) As price goes up,revenue goes up.
D) As price goes up,revenue does not change.
E) As price goes down,revenue does not change.

Question 70

Bottles of Pure Hawaiian Air contain air that smells like the floral bouquet that greets tourists as they get off the plane in Hawaii.When a tourist shop began selling Pure Hawaiian Air,it charged $5 per bottle and could not keep up with the demand.It has since raised the price to $7.Now the shop is still selling all the bottles of Pure Hawaiian Air it carries,but the owner is not forced to reorder on a daily basis.The $7 price is probably a(n):

A) supply schedule
B) symmetrical price
C) price equilibrium
D) inventory equalizer
E) inelastic price

Question 71

When the NES Group lowered the price of its professional-grade meat slicers from $2,300 to $1,600,demand doubled from 4 units sold per month to 8 units per month.However,total revenue dropped.This is an example of:

A) substitute goods
B) unitary elasticity
C) elastic demand
D) consumer shortage
E) inelastic demand

Question 72

Which of the following would imply demand would be elastic?

A) Price is low relative to purchasing power
B) Nondurable product
C) Low inflation rate
D) Many substitute products
E) All of these choices

Question 73

The _____ is the quantity of a product that will be sold in the market at various prices for a specified time period,and _____ is the quantity of a product that will be offered to the market by suppliers at various prices for a specified period.

A) demand;equity
B) demand;supply
C) supply;demand
D) inventory;demand
E) inventory;supply

Question 74

Consumers' responsiveness or sensitivity to changes in prices is known as:

A) break-even
B) equilibrium
C) unitary revenue
D) asymmetrical demand
E) elasticity of demand

Question 75

If price _____ and revenue _____,demand is elastic.

A) goes up;goes down
B) goes down;goes down
C) goes down;goes up
D) down;stays the same
E) up;stays the same

Question 76

While the sales of the Apple iPhone have been great from the beginning,when Apple released its iPhone 3G and cut the price of the iPhone for $399 to $199,sales exploded.One million iPhones sold the first weekend.Demand for the iPhone appears to be:

A) unitary
B) predictable
C) synergistic
D) inelastic
E) elastic

Question 77

All of the following factors directly affect the elasticity of demand EXCEPT:

A) other uses of a product
B) inputs needed to manufacture the product
C) availability of substitute goods
D) price relative to a consumer's purchasing power
E) product durability

Question 78

When price decreases and total revenue falls,demand is:

A) elastic
B) inelastic
C) absolute
D) unitary
E) stable

Question 79

The price of the good or service is a key decision for a marketer because it most significantly and directly affects the product's:

A) distribution
B) costs
C) demand
D) promotion
E) quality

Question 80

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

A) Inelastic demand
B) Functional elasticity of demand
C) Unitary elasticity
D) Highly elastic demand
E) Fixed elasticity