Question 1

Average-cost pricing works best in situations where demand conditions do not change a lot.

Accepted Answer

A) True 
 B)False

Question 2

The production cost of an automobile component is $45. The producer takes a 10 percent markup and sells the product to the wholesaler. What is the wholesaler's cost?

Accepted Answer

A)  $45 
B)  $5 
C)  $10 
D)  $50 
E)  $60

Question 3

"Full-line pricing" is setting prices for a whole line of products.

Accepted Answer

A) True 
 B)False

Question 4

"Psychological pricing" involves setting prices which end in certain numbers, while "odd-even pricing" is setting prices which have special appeal to target customers.

Accepted Answer

A) True 
 B)False

Question 5

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 6

With regard to bid pricing, a marketing manager should be aware that:

Accepted Answer

A)  the customer is always required to accept the lowest bid. 
B)  since it costs very little to submit a bid, most firms try to bid for as many jobs as possible. 
C)  the same overhead charges and profit rates usually apply to all bids. 
D)  a big problem is estimating all the costs--including the variable and fixed costs that apply to a particular job. 
E)  All of the above are true statements.

Question 7

Which of the following would NOT be included in a producer's total fixed cost?

Accepted Answer

A)  Rent 
B)  Property taxes 
C)  Insurance 
D)  Depreciation 
E)  Component parts

Question 8

Average-cost pricing means adding a reasonable markup to the total cost of a product.

Accepted Answer

A) True 
 B)False

Question 9

In target return pricing, the desired target return is added to total cost; otherwise, it's the same as average-cost pricing.

Accepted Answer

A) True 
 B)False

Question 10

Business customers are sometimes less price sensitive if there are switching costs.

Accepted Answer

A) True 
 B)False

Question 11

Walgreens Drugstores buys a bottle of shampoo from a wholesaler for $3.25 and then places it on a shelf with a price tag of $4.64. What is Walgreens' markup on selling price (expressed as a percent)?

Accepted Answer

A)  20 percent 
B)  26 percent 
C)  30 percent 
D)  43 percent 
E)  48 percent

Question 12

Price leaders usually emerge in pure competition--and they set a price for all to follow.

Accepted Answer

A) True 
 B)False

Question 13

If a firm's average variable cost is constant per unit, then the firm's average cost decreases continually as output increases because average fixed cost decreases continually.

Accepted Answer

A) True 
 B)False

Question 14

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 15

If a firm's total fixed cost is $400,000 and its fixed cost contribution per unit is $10, its break-even in units is:

Accepted Answer

A)  30,000. 
B)  40,000 
C)  10,000. 
D)  20,000. 
E)  Cannot be determined with this information.

Question 16

A firm using sequential price reductions starts with a high price but plans to reduce that price step-by-step until its product is sold out.

Accepted Answer

A) True 
 B)False

Question 17

A producer sells an item to a wholesaler for $4.00, and the wholesaler uses a markup of 25 percent on its selling price and the retailer uses a markup of 30 percent on its selling price. What will be the retailer's selling price to its customers?

Accepted Answer

A)  $7.61 
B)  $7.55 
C)  $7.36 
D)  $7.24 
E)  $7.12

Question 18

If Macy's department store prices its men's ties at $10 intervals between $38 and $68, this is an example of:

Accepted Answer

A)  Reference pricing 
B)  Price lining 
C)  Bundle pricing 
D)  Leader pricing 
E)  Bait pricing

Question 19

A firm with a stockturn rate of 4 sells products that cost it $100,000. This requires _____ worth of inventory.

Accepted Answer

A)  $25,000 
B)  $20,000 
C)  $80,000 
D)  $400,000 
E)  50,0000

Question 20

If the price per unit is $1.00 and the average variable cost per unit is 60 cents, the fixed cost contribution per unit is $1.40.

Accepted Answer

A) True 
 B)False

Exam 18: Price Setting in the Business World

Average-cost pricing works best in situations where demand conditions do not change a lot.

The production cost of an automobile component is $45. The producer takes a 10 percent markup and sells the product to the wholesaler. What is the wholesaler's cost?

"Full-line pricing" is setting prices for a whole line of products.

"Psychological pricing" involves setting prices which end in certain numbers, while "odd-even pricing" is setting prices which have special appeal to target 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:

With regard to bid pricing, a marketing manager should be aware that:

Which of the following would NOT be included in a producer's total fixed cost?

Average-cost pricing means adding a reasonable markup to the total cost of a product.

In target return pricing, the desired target return is added to total cost; otherwise, it's the same as average-cost pricing.

Business customers are sometimes less price sensitive if there are switching costs.

Walgreens Drugstores buys a bottle of shampoo from a wholesaler for $3.25 and then places it on a shelf with a price tag of $4.64. What is Walgreens' markup on selling price (expressed as a percent) ?

Price leaders usually emerge in pure competition--and they set a price for all to follow.

If a firm's average variable cost is constant per unit, then the firm's average cost decreases continually as output increases because average fixed cost decreases continually.

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

If a firm's total fixed cost is $400,000 and its fixed cost contribution per unit is $10, its break-even in units is:

A firm using sequential price reductions starts with a high price but plans to reduce that price step-by-step until its product is sold out.

A producer sells an item to a wholesaler for $4.00, and the wholesaler uses a markup of 25 percent on its selling price and the retailer uses a markup of 30 percent on its selling price. What will be the retailer's selling price to its customers?

If Macy's department store prices its men's ties at $10 intervals between $38 and $68, this is an example of:

A firm with a stockturn rate of 4 sells products that cost it $100,000. This requires _____ worth of inventory.

If the price per unit is $1.00 and the average variable cost per unit is 60 cents, the fixed cost contribution per unit is $1.40.