Question 1

A producer makes an item for $32 and sells it with a 50 percent markup to a wholesaler. The wholesaler then applies a 20 percent markup. A retailer then uses a 60 percent markup. The final retail selling price is:

Accepted Answer

A)  $200.00. 
B)  $73.60. 
C)  $64.00. 
D)  $80.00. 
E)  Cannot be determined without stockturn information.

Question 2

When the end benefit of a purchase is significant to the customer, he is likely to be less price sensitive.

Accepted Answer

A) True 
 B)False

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

In which of the following cases will profit be maximized?

Accepted Answer

A)  When marginal revenue is equal to marginal cost 
B)  When total cost is nearly equal to total fixed cost 
C)  When total revenue is nearly equal to total cost 
D)  When total variable cost is nearly equal to total fixed cost 
E)  When the break-even point is nearly equal to the average cost

Question 5

Alex's Knot Shop prices its ties at $5 intervals from $10 to $25 because most customers find these prices appealing and easier to compare. This is:

Accepted Answer

A)  prestige pricing. 
B)  penetration pricing. 
C)  price lining. 
D)  odd-even pricing. 
E)  value in use pricing.

Question 6

Regarding "full-line pricing," which of the following statements is TRUE?

Accepted Answer

A)  A good marketing manager usually tries to price products in a line so that the prices will seem logically related and make sense to target customers. 
B)  The marketing manager should try to cover all costs on the whole product line. 
C)  Most customers seem to feel that prices in a product line should be somewhat related to cost. 
D)  Not all companies that make a line of products must use full-line pricing. 
E)  All of these statements about "full-line pricing" are TRUE.

Question 7

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.
By pricing below other retailers, Sports Depot apparently:

Accepted Answer

A)  hopes to achieve status quo pricing objectives. 
B)  wants to set prices based on "value in use." 
C)  relies on a high margin percent. 
D)  sees this as an oligopoly market. 
E)  expects a high stockturn rate.

Question 8

Average cost is obtained by dividing:

Accepted Answer

A)  total fixed cost by the related quantity. 
B)  marginal cost by marginal revenue. 
C)  total cost by the related quantity. 
D)  average fixed cost and average variable cost by the quantity produced. 
E)  total variable cost by the related quantity.

Question 9

When setting prices, the marketing manager should consider the firm's demand curve, or else the price may not even cover the firm's total cost.

Accepted Answer

A) True 
 B)False

Question 10

A CVS drugstore that is trying to attract customers by advertising a special bargain price on a popular brand of cold remedy during the cold season is using:

Accepted Answer

A)  leader pricing. 
B)  bait pricing. 
C)  prestige pricing. 
D)  odd-even pricing. 
E)  price lining.

Question 11

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 12

Which of the following is a TRUE statement about markups?

Accepted Answer

A)  A firm can lose money even when using a high markup. 
B)  Markup percents are computed as a percent of the cost of the product. 
C)  It's easier for a producer to administer the prices consumers pay for products if the markup used varies from one intermediary to the next. 
D)  The lower the markup, the lower the profit. 
E)  None of these statements about markups is true.

Question 13

Marginal analysis focuses on the changes in average fixed cost per unit and average variable cost from selling one more unit to find the most profitable price and quantity.

Accepted Answer

A) True 
 B)False

Question 14

Sellers sometimes take the auction approach and adapt it by using sequential price reductions over time. When or where is this approach most commonly used?

Accepted Answer

A)  With products that have a short life. 
B)  When the product supply is unlimited. 
C)  With heavy equipment manufacturing machinery. 
D)  With products that have extremely low inventory costs. 
E)  When competition is absent.

Question 15

Setting prices by adding a "reasonable" markup to a firm's average cost is called:

Accepted Answer

A) break-even pricing. 
B) add-on pricing. 
C) target-return pricing. 
D) average-cost pricing. 
E) marginal analysis.

Question 16

Which of the following statements concerning "negotiated price" is FALSE?

Accepted Answer

A)  The negotiated price is set by bargaining between the buyer and the seller. 
B)  Negotiated pricing is not a demand-oriented approach. 
C)  Bargaining may involve the whole marketing mix, not just the price level. 
D)  Sellers must know their costs to negotiate effectively. 
E)  None of these statements about "negotiated price" is FALSE.

Question 17

The idea that people will pay extra for "quality" and status is the idea behind

Accepted Answer

A)  price lining. 
B)  average cost approaches to pricing. 
C)  penetration skimming. 
D)  prestige pricing. 
E)  psychological pricing.

Question 18

Average-cost pricing works well if the firm actually sells the quantity which was used in setting the price, but losses may result if actual sales are much higher than were expected-due to higher total variable costs.

Accepted Answer

A) True 
 B)False

Question 19

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.
SPI pays its salespeople a commission on each product they sell. The commission is:

Accepted Answer

A)  part of the total cost - but not specifically a fixed or a variable cost. 
B)  part of the total fixed cost. 
C)  not included in figuring average cost. 
D)  a variable cost. 
E)  none of these alternatives is correct.

Question 20

Leader pricing:

Accepted Answer

A)  seeks a big profit on the leader items. 
B)  is usually used for a retailer's major product line-to give it a competitive advantage. 
C)  is different from bait pricing in that the marketing manager really expects to sell leader priced items. 
D)  assumes that some part of the demand curve is upward sloping to the right. 
E)  is banned in interstate commerce.

Exam 17: Price Setting in the Business World

A producer makes an item for $32 and sells it with a 50 percent markup to a wholesaler. The wholesaler then applies a 20 percent markup. A retailer then uses a 60 percent markup. The final retail selling price is:

When the end benefit of a purchase is significant to the customer, he is likely to be less price sensitive.

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

In which of the following cases will profit be maximized?

Alex's Knot Shop prices its ties at $5 intervals from $10 to $25 because most customers find these prices appealing and easier to compare. This is:

Regarding "full-line pricing," which of the following statements is TRUE?

Average cost is obtained by dividing:

When setting prices, the marketing manager should consider the firm's demand curve, or else the price may not even cover the firm's total cost.

A CVS drugstore that is trying to attract customers by advertising a special bargain price on a popular brand of cold remedy during the cold season is using:

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:

Which of the following is a TRUE statement about markups?

Marginal analysis focuses on the changes in average fixed cost per unit and average variable cost from selling one more unit to find the most profitable price and quantity.

Sellers sometimes take the auction approach and adapt it by using sequential price reductions over time. When or where is this approach most commonly used?

Setting prices by adding a "reasonable" markup to a firm's average cost is called:

Which of the following statements concerning "negotiated price" is FALSE?

The idea that people will pay extra for "quality" and status is the idea behind

Average-cost pricing works well if the firm actually sells the quantity which was used in setting the price, but losses may result if actual sales are much higher than were expected-due to higher total variable costs.

Leader pricing: