Question 1

In oligopoly situations,

Accepted Answer

A)  one firm usually acts as the price leader--and orders the other firms to set the same price. 
B)  the best price is usually at the kink in the marginal revenue and demand curves. 
C)  each firm charges a different price. 
D)  All of the above is correct. 
E)  None of the above is correct.

Question 2

A markup is the dollar amount added to the cost of products to get the selling price.

Accepted Answer

A) True 
 B)False

Question 3

A retailer buys a particular product for $4. To make a profit, the retailer adds $2 to cover operating expenses and provide a profit. The percentage markup on the $6 selling price is

Accepted Answer

A)  50 percent. 
B)  33.33 percent. 
C)  100 percent. 
D)  20 percent. 
E)  25 percent.

Question 4

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 5

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 was:

Accepted Answer

A)  $2.00. 
B)  $2.50. 
C)  .50. 
D)  $1.00. 
E)  There is not enough information to tell.

Question 6

If a retailer's annual stockturn rate shifted to 20 from 5, then selling products costing $100,000 would require ______________ rather than $20,000 in working capital to carry the needed inventory.

Accepted Answer

A)  $10,000 
B)  $80,000 
C)  $8,000 
D)  $500 
E)  $5,000

Question 7

_____ involves setting one price for a set of products.

Accepted Answer

A)  Price lining 
B)  Odd-even pricing 
C)  Product bundle pricing 
D)  Bait pricing 
E)  Price leading

Question 8

The typical markup (percent) is the:

Accepted Answer

A)  cost of an item divided by its selling price--times 100. 
B)  selling price minus the cost of the item, divided by the cost of the item--times 100. 
C)  selling price of an item, divided by its cost--times 100. 
D)  selling price minus the cost of the item, divided by the selling price--times 100. 
E)  selling price minus the cost of the item, divided by the average fixed cost--times 100.

Question 9

Which of the following observations concerning target return pricing is true?

Accepted Answer

A)  It is a variation of the average-cost method. 
B)  It has become extremely unpopular over the years. 
C)  It is a demand oriented price setting method. 
D)  It guarantees that a firm will hit the profit target. 
E)  It is also called break-even analysis.

Question 10

Use this information for questions that refer to the Sporting Products, Inc. (SPI) case.
Randy Todd, marketing manager for Sporting Products, Inc. (SPI), is thinking about how changes taking place among retailers in his channel might impact his strategy.
SPI sells the products it produces through wholesalers and retailers. For example, SPI sells basketballs to Wholesale Supply for $8.00. Wholesale Supply uses a 20 percent markup and most of its "sport shop" retailer customers, like Robinson's Sporting Goods, use a 33 percent markup to arrive at the price they charge final consumers. However, one fast growing retail chain, Sports Depot, only uses a 20 percent markup for basketballs, even though it pays Wholesale Supply the same price as other retailers. Furthermore, Sports Depot occasionally lowers the price of basketballs and sells them at cost--to draw customers into its stores and stimulate sales of its pricey basketball shoes.
Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products. For example, Sports Depot prices all of its baseball gloves at $20, $40, or $60--with no prices in between. There are three big bins - one for each price point.
Todd is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out. The basic idea is to sell tennis balls in large quantities to nonprofit groups who resell the balls to raise money. For example, a service organization at a local college bought 2,000 tennis balls printed with the college logo. Sports Depot charged $.50 each for the tennis balls-plus a $500 one-time charge for the stamp to print the logo. The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless.
Todd is not certain if Sports Depot ideas will affect SPI's plans. For example, SPI is considering adding tennis racquets to the lines it produces. This would require a $500,000 addition to its factory as well as the purchase of new equipment that costs $1,000,000. The variable cost to produce a tennis racquet would be $20, but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each. That would allow most retailers to add their normal markup and make a profit. However, if Sports Depot sells the racquet at a lower than normal price other retailers might decide to carry it.
-Which of the following would NOT be one of SPI's fixed costs in the production of basketballs?

Accepted Answer

A)  rent on the building used to store inventory of balls. 
B)  rubber used to make the balls. 
C)  property taxes for the building used to make the balls. 
D)  depreciation on the equipment used to make the balls. 
E)  insurance on the building used to make the balls.

Question 11

To maximize its profit, a producer should set a price (and produce that related output) where:

Accepted Answer

A)  marginal cost is just less than or equal to marginal revenue. 
B)  marginal cost is at its minimum. 
C)  price is as high as possible. 
D)  total revenue equals total cost. 
E)  marginal revenue is zero.

Question 12

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

Accepted Answer

A)  Wages 
B)  Outgoing freight 
C)  Depreciation 
D)  Sales commissions 
E)  Packaging material expense

Question 13

TopKnotch Mfg. Co. has a production cost of $280. It sells its product to a wholesaler for $400. The wholesaler then sells the item to retailers for $500 and the retailers sell the item for $1,000. Which of the following is true about this "markup chain?"

Accepted Answer

A)  The wholesaler's markup is 25 percent. 
B)  The manufacturer is taking a markup of 30 percent. 
C)  The retailers' markup is 100 percent. 
D)  All of the above are true. 
E)  None of the above is true.

Question 14

A producer incurred costs of $54,000 for labor and materials and $26,000 for fixed overhead expenses in a year. The firm produced 20,000 units during the year. If the producer desires a profit of $1 per unit in the coming year, what should the producer's selling price be using average-cost pricing?

Accepted Answer

A)  $3.70. 
B)  $2.30. 
C)  $5.00. 
D)  $6.00. 
E)  Cannot be determined from the information provided.

Question 15

The "rule for maximizing profit" is that a producer should set a price such that:

Accepted Answer

A)  the difference between marginal revenue and marginal cost is the greatest. 
B)  marginal revenue is at a maximum. 
C)  average cost is at a minimum. 
D)  marginal profit is maximized. 
E)  marginal cost is just less than or equal to marginal revenue.

Question 16

A major advantage of average-cost pricing is that it assumes costs remain constant at different levels of output.

Accepted Answer

A) True 
 B)False

Question 17

The stockturn rate is the number of times the average inventory must turnover to make a profit in a given year.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Retailers of which of the following products would probably have the highest stockturn rate?

Accepted Answer

A)  furniture 
B)  women's clothing 
C)  hardware 
D)  fresh seafood 
E)  bowling balls

Question 20

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 the above.

Exam 18: Price Setting in the Business World

In oligopoly situations,

A markup is the dollar amount added to the cost of products to get the selling price.

A retailer buys a particular product for $4. To make a profit, the retailer adds $2 to cover operating expenses and provide a profit. The percentage markup on the $6 selling price is

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.

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 was:

If a retailer's annual stockturn rate shifted to 20 from 5, then selling products costing $100,000 would require ______________ rather than $20,000 in working capital to carry the needed inventory.

_____ involves setting one price for a set of products.

The typical markup (percent) is the:

Which of the following observations concerning target return pricing is true?

To maximize its profit, a producer should set a price (and produce that related output) where:

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

TopKnotch Mfg. Co. has a production cost of $280. It sells its product to a wholesaler for $400. The wholesaler then sells the item to retailers for $500 and the retailers sell the item for $1,000. Which of the following is true about this "markup chain?"

A producer incurred costs of $54,000 for labor and materials and $26,000 for fixed overhead expenses in a year. The firm produced 20,000 units during the year. If the producer desires a profit of $1 per unit in the coming year, what should the producer's selling price be using average-cost pricing?

The "rule for maximizing profit" is that a producer should set a price such that:

A major advantage of average-cost pricing is that it assumes costs remain constant at different levels of output.

The stockturn rate is the number of times the average inventory must turnover to make a profit in a given year.

High markups on a product could lead to low profits when

Retailers of which of the following products would probably have the highest stockturn rate?

Average-cost pricing: