Question 1

If a retailer adds a 25-cent markup to a product which costs the retailer $1.00, then according to the text the retailer's markup is 25 percent.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  $191.00 
B)  $242.00 
C)  $182.00 
D)  $140.30 
E)  $200.00

Question 3

Most retailers and wholesalers set prices by using a different markup percent for each different product carried.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Prestige pricing involves setting a rather high price because the product has a normal down-sloping demand curve.

Accepted Answer

A) True 
 B)False

Question 6

Average-cost pricing:

Accepted Answer

A)  May be very profitable if actual sales are higher than expected. 
B)  May lose money for the firm if actual sales are less than expected. 
C)  Does not take demand into account in setting prices. 
D)  Is simple in theory but often fails in practice. 
E)  All of these alternatives are correct.

Question 7

The price most consumers expect to pay for a product is called the leader price.

Accepted Answer

A) True 
 B)False

Question 8

Sam's Club purchases a 24-pack of bottled water from a wholesaler for $3.85 and wants a markup of 25 percent. What is the price that Sam's Club charges its customers?

Accepted Answer

A)  $4.25 
B)  $4.75 
C)  $4.95 
D)  $5.13 
E)  $5.75

Question 9

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.

Accepted Answer

A)  average-cost pricing 
B)  bait pricing 
C)  leader pricing 
D)  prestige pricing 
E)  psychological pricing

Question 10

Fly-Right Travel Agency arranges vacation packages to Disney World in Florida. The price includes airfare, a rental car, deluxe accommodations, and tickets to Disney World and other attractions. Fly-Right is using:

Accepted Answer

A)  Product-bundle pricing. 
B)  Complementary product pricing. 
C)  Full-line pricing. 
D)  Bid pricing. 
E)  Demand-backward pricing.

Question 11

Wilson sells a basketball to a wholesaler for $16, and the wholesaler applies a 20 percent markup. A retailer then applies a 33.3 percent markup. The final selling price is:

Accepted Answer

A)  $24.53. 
B)  $30.00. 
C)  $25.59. 
D)  $28.00. 
E)  Cannot be determined from the information given.

Question 12

Total fixed costs do not change when output increases.

Accepted Answer

A) True 
 B)False

Question 13

Demand-backward pricing is commonly used by producers of consumer products, especially shopping products such as women's clothing and appliances.

Accepted Answer

A) True 
 B)False

Question 14

Break-even analysis evaluates whether the firm will be able to cover all its costs with a particular price.

Accepted Answer

A) True 
 B)False

Question 15

Michael Soles-owner of Soles Shoe Store-recently discovered that shoe stores in his trading area have an average markup of 40 percent. Upon investigation, Michael found that his average markup is $15 on shoes that he sells for $45. This suggests that:

Accepted Answer

A)  Michael has higher-than-average costs. 
B)  Michael is pricing his products higher than his competitors. 
C)  Michael is taking a smaller average markup than his competitors. 
D)  Michael has a relatively high stockturn rate. 
E)  Michael's markups in dollar amounts are about the same as his competitors.

Question 16

High markups on a product could lead to low profits when

Accepted Answer

A)  competitors have higher markups. 
B)  there are no substitutes. 
C)  demand is inelastic. 
D)  sales dip due to high prices. 
E)  supply is inelastic.

Question 17

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 18

Setting a few price levels for a product line and then marking all items at these price levels is:

Accepted Answer

A)  leader pricing. 
B)  price lining. 
C)  product-bundle pricing. 
D)  penetration pricing. 
E)  odd-even pricing.

Question 19

In a down economy, a local florist surveys her customers to determine the amount they feel comfortable spending for a bouquet of flowers. Then she displays bouquets costing that exact amount in her refrigerated case. This is an example of:

Accepted Answer

A)  Reference price 
B)  Line price 
C)  Bundle price 
D)  Leader price 
E)  Demand-backward price

Question 20

The basic problem with the average-cost approach is that it

Accepted Answer

A)  does not consider cost variations at different levels of output. 
B)  does not consider historical values. 
C)  does not add a reasonable markup to the average cost of a product. 
D)  is not commonly used. 
E)  is a complex method.

Exam 17: Price Setting in the Business World

If a retailer adds a 25-cent markup to a product which costs the retailer $1.00, then according to the text the retailer's markup is 25 percent.

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

Most retailers and wholesalers set prices by using a different markup percent for each different product carried.

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

Prestige pricing involves setting a rather high price because the product has a normal down-sloping demand curve.

Average-cost pricing:

The price most consumers expect to pay for a product is called the leader price.

Sam's Club purchases a 24-pack of bottled water from a wholesaler for $3.85 and wants a markup of 25 percent. What is the price that Sam's Club charges its customers?

Fly-Right Travel Agency arranges vacation packages to Disney World in Florida. The price includes airfare, a rental car, deluxe accommodations, and tickets to Disney World and other attractions. Fly-Right is using:

Wilson sells a basketball to a wholesaler for $16, and the wholesaler applies a 20 percent markup. A retailer then applies a 33.3 percent markup. The final selling price is:

Total fixed costs do not change when output increases.

Demand-backward pricing is commonly used by producers of consumer products, especially shopping products such as women's clothing and appliances.

Break-even analysis evaluates whether the firm will be able to cover all its costs with a particular price.

Michael Soles-owner of Soles Shoe Store-recently discovered that shoe stores in his trading area have an average markup of 40 percent. Upon investigation, Michael found that his average markup is $15 on shoes that he sells for $45. This suggests that:

High markups on a product could lead to low profits when

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

Setting a few price levels for a product line and then marking all items at these price levels is:

In a down economy, a local florist surveys her customers to determine the amount they feel comfortable spending for a bouquet of flowers. Then she displays bouquets costing that exact amount in her refrigerated case. This is an example of:

The basic problem with the average-cost approach is that it