Question 1

Which of the following is a typical example of a fixed cost?

Accepted Answer

A) taxes 
B) raw materials 
C) sales commissions 
D) building rental expense 
E) hourly wages

Question 2

An analysis of a prospective product shows that sales for it are expected to grow by at least 10 percent each year over the next five years before it enters the maturity phase of its product life cycle. This type of analysis would provide useful information in which step of the price-setting process?

Accepted Answer

A) identifying pricing objectives and constraints 
B) determining cost, volume, and profit relationships 
C) estimating demand and revenue 
D) selecting an appropriate (approximate) price lining strategy 
E) making special adjustments to list or quoted price

Question 3

Variable cost refers to

Accepted Answer

A) the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold. 
B) the sum of the expenses of the firm that change with the quantity of a product that is produced and sold. 
C) the total expense incurred by a firm in producing and marketing a product, which equals the sum of fixed cost and marginal cost. 
D) the average amount of money received for selling one unit of a product or simply the price of that unit. 
E) the change in total cost that results from producing and marketing one additional unit of a product.

Question 4

To increase value the most, marketers should

Accepted Answer

A) decrease benefits. 
B) decrease benefits and increase price. 
C) decrease price and increase benefits. 
D) decrease price and decrease benefits. 
E) do nothing and let the perceived value of the item increase as it matures in its life cycle.

Question 5

An oligopoly is a competitive market situation where

Accepted Answer

A) many sellers follow market price for identical, commodity products. 
B) one seller sets the price for a unique product. 
C) few sellers are sensitive to one another's prices. 
D) many sellers compete on nonprice factors. 
E) one or few sellers compete solely on nonprice factors.

Question 6

Vizio's HDTVs are sold through all of the following types of retailers except

Accepted Answer

A) Amazon.com. 
B) mass merchandisers, such as Target. 
C) its own company stores. 
D) wholesale club stores such as Sam's Club. 
E) electronics stores such as Best Buy.

Question 7

All of the following statements about price are true except

Accepted Answer

A) small changes in price can have big effects on both the number of units sold and company profit. 
B) the price for a product or service must earn a profit for the company. 
C) the price for most products and services is always the same. 
D) the price must be "right"-in the sense that customers must be willing to pay it. 
E) the price must generate enough sales dollars to pay for the cost of developing, producing, and marketing the product.

Question 8

Which of the following are examples of elements involved in Step 1 of the price-setting process?

Accepted Answer

A) profit, market share, and survival 
B) estimation of demand, sales revenue, and price elasticity 
C) cost estimation, marginal analysis, and break-even analysis 
D) demand for the product class and brand, newness of the product, and competition 
E) market segmentation targeting, and positioning

Question 9

The ratio of perceived benefits to price is referred to as

Accepted Answer

A) the price-quality relationship. 
B) customer-value pricing. 
C) value-added pricing. 
D) value analysis. 
E) value.

Question 10

A manufacturing company that introduces a product must know or anticipate what specific price its __________ currently charge or may charge in the future.

Accepted Answer

A) present and potential competitors 
B) financial institutions 
C) suppliers 
D) unions 
E) regulators

Question 11

In which type of industry would a marketing director be most likely to say, "We have to let the customer know that our product is the only one that comes with its own tracking device"?

Accepted Answer

A) pure monopoly 
B) oligopoly 
C) pure competition 
D) monopolistic oligopoly 
E) monopolistic competition

Question 12

Step 1 of the price-setting process identifies pricing objectives and constraints. Describe the reasons these objectives may change and give examples of objectives a firm may set.

Accepted Answer

The answer of Step 1 of the price-setting process identifies...

Question 13

Three different objectives relate to a firm's profit, which have different implications for pricing strategy. The three profit-oriented objectives include __________, managing current profit, and achieving a target return.

Accepted Answer

A) accumulating profits 
B) managing for long-run profits 
C) reinvesting profits 
D) redistributing profits 
E) maximizing gross margin

Question 14

A pair of $200 designer denim jeans cost so much because

Accepted Answer

A) the labor to make them comprises the largest percentage of the final price. 
B) the marketer must cover all of its operating costs while earning a profit. 
C) the specialty retailers that sell them account for only 25 percent of the cost so that the jeans can experience "demand pull." 
D) the contract manufacturer for the jeans receives the least percentage of the final price. 
E) the marketer of the designer denim jeans makes the largest percentage of the final price.

Question 15

Ampro-Mag is a small company that makes materials for safely controlling hazardous spills of all kinds. It sells these items as a neutralizing kit priced at $100. The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in trade journals, and $3,500 for the monthly salary of its owner. What is Ampro-Mag's monthly break-even point in terms of number of neutralizing kits sold?

Accepted Answer

A) 40 kits 
B) 52 kits 
C) 104 kits 
D) 116 kits 
E) 520 kits

Question 16

Which of the following statements would most likely be spoken during Step 2 of the price-setting process?

Accepted Answer

A) "It's important to offer discounts to seniors." 
B) "We have to try to achieve an 8 percent profit share." 
C) "The starting price should be $4.99 and we can raise the price again in six months." 
D) "But, if we increase the price even by $1, how many customers will we lose?" 
E) "We should probably price the extra-large version somewhere between $600 and $650."

Question 17

Objectives such as profit, market share, and survival, as well as constraints such as demand for product class and brand, newness, costs, and competition are issues that would be addressed during __________ of the price-setting process.

Accepted Answer

A) Step 1 
B) Step 2 
C) Step 3 
D) Step 4 
E) Step 5

Question 18

Which of the following would be an example of an objective in Step 1 of the price-setting process?

Accepted Answer

A) We need to set an initial price of $259 per unit. 
B) We need to find the least expensive distributor. 
C) We need to make a profit of at least $1.2 million. 
D) We need to make allowances for large quantity orders. 
E) We need to increase the price during the holiday shopping season.

Question 19

A firm's profit equation equals

Accepted Answer

A) Total cost + Total revenue or [(Fixed cost + Variable cost) + (Unit price × Quantity sold)]. 
B) Total revenue - Total cost or [(Unit price × Quantity sold) - (Fixed cost + Variable cost)]. 
C) Total cost - Marginal cost or [(Fixed cost + Variable cost) - (Unit price × Quantity sold)]. 
D) Total cost - Variable cost or [(Fixed cost + Variable cost) - (Unit price × Quantity sold)]. 
E) Total revenue/Total cost or [(Unit price × Quantity sold) ÷ (Fixed cost + Variable cost)].

Question 20

With consumers able to compare prices on the Internet, they can make more ___________ buying decisions.

Accepted Answer

A) efficient 
B) profitable 
C) effective 
D) relative 
E) affective

Exam 13: Building the Price Foundation