Question 1

The sequence of markups firms use at different levels in a channel is referred to as a

Accepted Answer

A)  market sequence. 
B)  markup chain. 
C)  markup margin. 
D)  standard markup. 
E)  markup channel.

Question 2

What is the best pricing tool marketers have for looking at costs and revenue at the same time?

Accepted Answer

A)  Break-even analysis 
B)  Markdown approach 
C)  Average-cost pricing method 
D)  Marginal analysis 
E)  Markup approach

Question 3

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.
How many of the printed tennis balls must the service organization sell to cover the $500 fixed printing charge?

Accepted Answer

A)  250 
B)  400 
C)  500 
D)  1000 
E)  2000

Question 4

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 5

When Nintendo sets a relatively low price on its game units to stimulate more demand for its game cartridges, it is using

Accepted Answer

A)  complementary product pricing. 
B)  product-bundle pricing. 
C)  price lining. 
D)  bait pricing. 
E)  cost plus pricing.

Question 6

The text says "markups":

Accepted Answer

A)  should always be stated as a percentage of cost. 
B)  are a percentage of selling price-unless otherwise stated. 
C)  are never stated as a percentage of cost. 
D)  should never be stated in dollar amounts. 
E)  None of these alternatives is correct.

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.
How could Randy Todd use break-even analysis with his tennis racquet decision?

Accepted Answer

A)  To reveal the combination of quantity and price that gives the highest profit. 
B)  To set the most profitable price. 
C)  To estimate future sales. 
D)  To compare the break-even quantity for different prices with the likely level of demand. 
E)  To determine Wholesale Supply's likely selling price.

Question 8

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 9

Good Health Co. has set a suggested retail list price of $40 on its new vitamin tablets on the assumption that its target market will find the product attractive at this price. From this suggested retail list price, Good Health has subtracted its usual chain of markups for wholesalers and retailers to obtain its own selling price of $17. This is:

Accepted Answer

A)  demand-backward pricing. 
B)  full-line pricing. 
C)  average-cost pricing. 
D)  odd-even pricing. 
E)  prestige pricing.

Question 10

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 11

A standard markup is often set close to the firm's

Accepted Answer

A)  gross margin. 
B)  net profits. 
C)  overheads. 
D)  operating costs. 
E)  competitors' costs.

Question 12

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 13

Which of the following costs do not change with an increase in output?

Accepted Answer

A)  Total variable cost 
B)  Total fixed cost 
C)  Total cost 
D)  Average total cost per unit 
E)  Average fixed cost per unit

Question 14

Product-bundle pricing may encourage customers to spend more and buy products that they would not buy otherwise.

Accepted Answer

A) True 
 B)False

Question 15

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 16

The Roulette Corporation, a video game manufacturer, sets a single price for a set of 5 video games, a video game console, and a pair of speakers. This pricing strategy is called _____.

Accepted Answer

A)  full-line pricing 
B)  complementary product pricing 
C)  product-bundle pricing 
D)  bid pricing 
E)  psychological pricing

Question 17

If a manager sells more than was expected when average-cost pricing was used to set a price, the firm will lose money.

Accepted Answer

A) True 
 B)False

Question 18

Online auctions (on the Internet) are becoming very popular as a way to determine how much customers are willing to pay for a product.

Accepted Answer

A) True 
 B)False

Question 19

If a supermarket runs an ad for a gallon of milk in the local newspaper at a price that many consumers will recognize as a low price for this product, this is an example of:

Accepted Answer

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

Question 20

Which of the following is an example of a variable cost for a producer?

Accepted Answer

A)  Depreciation. 
B)  Managers' salaries. 
C)  Rent. 
D)  Packaging materials. 
E)  Property taxes.

Exam 17: Price Setting in the Business World

The sequence of markups firms use at different levels in a channel is referred to as a

What is the best pricing tool marketers have for looking at costs and revenue at the same time?

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:

When Nintendo sets a relatively low price on its game units to stimulate more demand for its game cartridges, it is using

The text says "markups":

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:

A standard markup is often set close to the firm's

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

Which of the following costs do not change with an increase in output?

Product-bundle pricing may encourage customers to spend more and buy products that they would not buy otherwise.

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

The Roulette Corporation, a video game manufacturer, sets a single price for a set of 5 video games, a video game console, and a pair of speakers. This pricing strategy is called _____.

If a manager sells more than was expected when average-cost pricing was used to set a price, the firm will lose money.

Online auctions (on the Internet) are becoming very popular as a way to determine how much customers are willing to pay for a product.

If a supermarket runs an ad for a gallon of milk in the local newspaper at a price that many consumers will recognize as a low price for this product, this is an example of:

Which of the following is an example of a variable cost for a producer?