Chapter 14

Jason rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20. His fixed costs are $100,000 and his target profit is $20,000. For Jason, to earn his target profit, he will need to rent out ________ rooms. a. 1,500 b. 20,000 c. It cannot be determined from the information provided. d. 100 e. 1,000

a. 1,500

Variable costs change with Select one: a. changes in the quantity being produced. b. changes in fixed costs. c. competitive parity. d. changes in cross-price elasticity. e. changes in target return pricing.

a. changes in the quantity being produced.

If the price for a product increases, the demand for the complementary product will Select one: a. decrease. b. increase. c. become more inelastic. d. become more elastic. e. stay the same.

a. decrease.

Break-even analysis is useful because it allows managers to Select one: a. estimate the quantity they will need to sell at a given price to break even. b. analyze the different elements contributing to their variable costs. c. determine the relationship between price and quantity demanded. d. reposition products based on their break-even positioning revenue. e. quantify the relationship between price elasticity and product elasticity.

a. estimate the quantity they will need to sell at a given price to break even.

With a __________ pricing strategy, marketers set a low initial price for the introduction of a new product or service. Select one: a. market penetration b. bundling c. price fixing d. reference e. skimming Incorrect

a. market penetration

Cross-price elasticity is the Select one: a. percentage change in quantity demanded of product A compared to the percentage change in price of product B. b. percentage change in quantity of a product demanded divided by the percentage change in its price. c. change in quantity of a product demanded divided by the change in its price. d. change in quantity of a product demanded divided by the change in its elasticity. e. change in price of product A divided by change in quantity demanded for product B.

a. percentage change in quantity demanded of product A compared to the percentage change in price of product B.

A demand curve shows the relationship between ___________________ in a period of time. Select one: a. price and demand b. demand and cost c. profit and price d. income and demand e. price and elasticity

a. price and demand

Brad always buys and uses Nike brand golf balls. If he finds a Titleist or Callaway ball in the rough, he gives it away. Brand loyal golfers like Brad allow Nike to charge a higher price and not lose many sales. By building a strong brand, Nike has effectively Select one: a. reduced the price elasticity of demand for its products. b. increased the income effect for its products. c. shifted the golf ball market from a monopoly to pure competition. d. focused on the competitive parity point for its products. e. increased the cross-price elasticity for its products.

a. reduced the price elasticity of demand for its products.

Marlie designs and manufactures specialty furniture. She has a number of unique products but can only produce in limited quantities. Marlie will probably NOT use a market penetration strategy because a. she could not meet a rapid rise in demand. b. there are few barriers to competitive entry in the market. c. she would have to determine zone pricing discounts. d. the experience curve effect would drop unit costs too rapidly. e. a low price would indicate low quality.

a. she could not meet a rapid rise in demand.

Which of the following is most likely to be characterized by pure competition in the United States? Select one: a. soybeans b. soft drinks c. computer operating systems d. cereal e. fast food restaurants

a. soybeans

Which of the following is most likely to be characterized by pure competition in the United States? a. soybeans b. cereal c. computer operating systems d. fast food restaurants e. soft drinks

a. soybeans

Ryan gave the manager of his convenience store a set of binoculars so she could see the gasoline prices charged by the other convenience store at that intersection. Ryan told the manager to always match the gasoline prices of the other store. Ryan is using a _____________________ pricing strategy. Select one: a. status quo b. sales c. target profit d. maximizing profits e. target return

a. status quo

According to a typical demand curve, the higher the price, Select one: a. the lower the quantity consumers will buy. b. the lower the output of producers. c. the lower the cross-price elasticity. d. the greater the production costs. e. the greater the income effect.

a. the lower the quantity consumers will buy.

A customer orientation toward pricing implicitly invokes the concept of Select one: a. value. b. positioning. c. profit. d. knowing the dimensions of the target market. e. the income effect.

a. value.

Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as a gift for the host. Since she does not know much about wine, she will likely use the price of the wines as a. an indicator of the variety. b. an indicator of quality. c. a measure of scarcity. d. a reflection of status quo pricing. e. a measure of the income effect.

b. an indicator of quality.

In a __________ pricing tactic, sellers advertise low prices and then aggressively pressure customers to purchase higher-priced versions of the product advertised with the low price. Select one: a. seasonal b. bait and switch c. reference d. fixed offer e. cost-based

b. bait and switch

In a __________ pricing tactic, sellers advertise low prices and then aggressively pressure customers to purchase higher-priced versions of the product advertised with the low price. Select one: a. seasonal b. bait and switch c. reference d. cost-based e. fixed offer

b. bait and switch

If the price for a product increases, the demand for the complementary product will Select one: a. increase. Incorrect b. decrease. c. become more elastic. d. become more inelastic. e. stay the same.

b. decrease.

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a _______________ market. Select one: a. pure competition b. monopolistic competition c. monopoly d. duopoly e. oligopolistic competition

b. monopolistic competition

Developing pricing strategies for __________ is one of the most challenging tasks a manager can a. zone pricing products b. new products c. seasonal rebate items d. cost-based pricing e. quantity discounts

b. new products

A demand curve shows the relationship between ___________________ in a period of time. a. profit and price b. price and demand c. price and elasticity d. income and demand e. demand and cost

b. price and demand

At the break-even point, a. fixed costs are zero. b. profits are zero. c. costs are zero. d. price is maximized. e. contribution per unit is zero.

b. profits are zero.

Julia wants her firm's gourmet snacks to be the leading brand in the U.S. market. When adopting a pricing strategy designed to gain market share, she should remember that Select one: a. price wars are the way to become the dominant brand. b. rarely is the lowest-price offering the dominant brand in a market. c. companies can gain market share by offering low-quality products at a high price. d. total value equals total cost minus variable costs leading to price escalation. e. prestige products need to be competitively priced.

b. rarely is the lowest-price offering the dominant brand in a market.

Marketers spend millions of dollars annually trying to create or reinforce brand loyalty. Brand loyalty changes the demand curve for the firm's products by Select one: a. shifting the market from a monopoly to pure competition. b. reducing the price elasticity of demand. c. increasing the income effect. d. making demand more oligopolistic and less monopolistic. e. reducing fixed costs and increasing the gray marketing effect.

b. reducing the price elasticity of demand.

In determining the price for his company's new pocket digital camera, Matt determines what consumers consider the regular or original price for similar cameras available in the market. Matt is assessing the influence of __________ on pricing strategy. Select one: a. cost of ownership b. reference prices c. improvement value d. everyday low pricing e. odd-even prices

b. reference prices

For marketers to advertise a price as their __________, the Better Business Bureau recommends that at least 50 percent of the sales of a product occur at that price. Select one: a. cost-based price b. regular price c. fixed price d. zone price e. leader price

b. regular price

David manages a Shoney's restaurant. He is considering staying open later in the evening. For David, the variable costs associated with staying open longer hours will include all of the following EXCEPT Select one: a. ingredients used in preparing food. b. rent on the restaurant building. c. hours worked by the waiters and waitresses. d. energy costs. e. hours worked by cooks.

b. rent on the restaurant building.

Many years ago Honda's Accord and Ford's Taurus were the top two selling cars in the United States. As the year was coming to an end, Ford cut the price of the Taurus, hoping to outsell the Accord and allow Ford to claim that "Taurus is the best-selling car in America." Ford was using a ___________________ pricing strategy. Select one: a. status quo b. sales orientation c. target profit d. maximizing profits e. target return

b. sales orientation

Price is often the most challenging of the four Ps to manage, partly because it is often ______________ in developing marketing strategies. a. difficult to calculate markups b. treated as an afterthought c. the subject of cross-shopping differentiation d. calculated by senior consultants e. the least important aspect

b. treated as an afterthought

Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Raymond, the total cost of opening the new branch and remaining open for one year will be: a. $605,000 b. $500,000. c. $550,000. d. $650,000. e. $450,000.

c. $550,000.

What type of pricing tactic is being used when several airlines agree to charge the same fare for a single route? a. Vertical price fixing b. Vertical price discrimination c. Horizontal price fixing d. Loss leader pricing e. Horizontal price discrimination

c. Horizontal price fixing

Julia's is an upscale women's clothing store. Prices are based on customers' beliefs about the value of the clothing. The store focuses on a limited target market and provides excellent customer service. Julia's is using a ________________ pricing strategy. Select one: a. status quo b. target profit c. customer-oriented d. target return Incorrect e. maximizing profits

c. customer-oriented

Managers of Wendy's fast food restaurants keep track of prices at competitors such as McDonald's, Burger King, and Arby's, knowing that a decrease in the prices at these other fast food restaurants will Select one: a. increase the complementary effect for Wendy's products. b. increase demand for Wendy's products. c. decrease demand for Wendy's products. d. decrease the income effect for Wendy's products. e. increase the income effect for Wendy's products.

c. decrease demand for Wendy's products.

Gerald has a number of customers for his lawn care service who never question his bill but expect their lawns to be perfect. These customers do not want low prices, they want Select one: a. a target return. b. fixed costs. c. high value. d. cross-price discounts. e. a sales orientation.

c. high value.

A study found that, among addicted smokers, a 10 percent increase in the price of cigarettes resulted in a 2 percent decrease in quantity demanded. For these consumers, cigarettes have a ________________ price elasticity demand. Select one: a. income effect b. substitution effect c. inelastic d. elastic e. cross-price

c. inelastic

Mario is the first retailer in town to sell games for Sony's new PlayStation 3 machine. Mario wants to quickly capture as much of the market for the new games as possible. Mario will likely use a __________ pricing strategy. a. price fixing b. reference c. market penetration d. skimming e. Bundling

c. market penetration

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a _______________ market. Select one: a. pure competition b. monopoly c. monopolistic competition d. duopoly e. oligopolistic competition

c. monopolistic competition

Because there are only a few firms in markets with oligopolistic competition, a. government often encourages consolidation to reduce the number of competitors. b. producers do not have to consider the reactions of rival firms. c. price wars may occur. d. everyone is a price taker. e. the many competitors will focus on product differentiation.

c. price wars may occur.

Julia wants her firm's gourmet snacks to be the leading brand in the U.S. market. When adopting a pricing strategy designed to gain market share, she should remember that Select one: a. companies can gain market share by offering low-quality products at a high price. b. prestige products need to be competitively priced. c. rarely is the lowest-price offering the dominant brand in a market. d. total value equals total cost minus variable costs leading to price escalation. Incorrect e. price wars are the way to become the dominant brand.

c. rarely is the lowest-price offering the dominant brand in a market.

Which of the following markets is MOST likely to be characterized by oligopolistic competition in the United States? Select one: a. soybeans b. pens and pencils c. soft drinks d. electrical service to the home e. men's clothing

c. soft drinks

Naomi tells her sales representatives the goal is to generate at least a 20 percent return on investment for all of the industrial building supplies they sell. Naomi is using a _______________ pricing strategy. Select one: a. competitive parity b. target profit c. target return d. sales orientation e. status quo

c. target return

_________ is the practice of colluding with other firms to control prices. Select one: a. Competitive favoritism b. Monopolistic competition c. Industry tightening d. Price fixing e. Regressive pricing

d. Price fixing

For which of the following is demand likely to be most sensitive to price increases? Select one: a. hospital care b. prescription drugs c. electricity d. a specific brand of soft drink e. college tuition for last-semester seniors

d. a specific brand of soft drink

Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as a gift for the host. Since she does not know much about wine, she will likely use the price of the wines as Select one: a. a measure of scarcity. b. a reflection of status quo pricing. c. an indicator of the variety. d. an indicator of quality. e. a measure of the income effect.

d. an indicator of quality.

Julia's is an upscale women's clothing store. Prices are based on customers' beliefs about the value of the clothing. The store focuses on a limited target market and provides excellent customer service. Julia's is using a ________________ pricing strategy. a. target return b. status quo c. target profit d. customer-oriented e. maximizing profits

d. customer-oriented

Traditional demand curve economic theory is used by marketers to understand _______________ in the five Cs of pricing. Select one: a. cost Incorrect b. channel members c. competitors d. customers e. company objectives

d. customers

Managers of Wendy's fast food restaurants keep track of prices at competitors such as McDonald's, Burger King, and Arby's, knowing that a decrease in the prices at these other fast food restaurants will Select one: a. increase the complementary effect for Wendy's products. b. decrease the income effect for Wendy's products. c. increase demand for Wendy's products. Incorrect d. decrease demand for Wendy's products. e. increase the income effect for Wendy's products.

d. decrease demand for Wendy's products.

If the price for a product increases, the demand for the complementary product will a. become more inelastic. b. become more elastic. c. increase. d. decrease. e. stay the same.

d. decrease.

The break-even point is estimated by Select one: a. dividing variable costs by fixed costs. b. multiplying fixed costs by contribution per unit. c. dividing fixed contribution per unit by variable costs. d. dividing fixed costs by contribution per unit. e. multiplying revenue per unit times the quantity sold.

d. dividing fixed costs by contribution per unit.

With a __________ pricing strategy, marketers set a low initial price for the introduction of a new product or service. a. bundling b. reference c. skimming d. market penetration e. price fixing

d. market penetration

Sharon knew that her established customers liked her product much better than her competitor's. She was planning to expand into new markets, and she was considering pricing. She was leaning toward charging a higher price than competitors to help demonstrate that hers was a high-quality product. Sharon was considering Select one: a. advantageous pricing. b. a top of market strategy. c. the value of quality. d. premium pricing. e. differential pricing.

d. premium pricing.

If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand, demand is Select one: a. price inelastic. b. cross-price elastic. c. status quo elasticity. d. price elastic. e. derived demand inelastic.

d. price elastic.

Historically, prices were a. allowed to vary seasonally as cross-shopping tendencies fluctuated. b. the center of attention in almost all marketing strategies. c. calculated to minimize contribution per unit. d. rarely changed except in response to radical shifts in market conditions. e. analyzed and changed constantly.

d. rarely changed except in response to radical shifts in market conditions.

Price is often the most challenging of the four Ps to manage, partly because it is often ______________ in developing marketing strategies. Select one: a. calculated by senior consultants b. the least important aspect c. the subject of cross-shopping differentiation Incorrect d. treated as an afterthought e. difficult to calculate markups

d. treated as an afterthought Odd prices often suggest __________ to consumers. Select one: a. low quality b. expired merchandise c. foreign-made goods d. superior quality e. uniqueness ^a. low quality

Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Raymond, the total cost of opening the new branch and remaining open for one year will be: Select one: a. $605,000. b. $650,000. c. $500,000. d. $450,000. e. $550,000.

e. $550,000.

What type of pricing tactic is being used when several airlines agree to charge the same fare for a single route? Select one: a. Vertical price discrimination b. Loss leader pricing c. Vertical price fixing d. Horizontal price discrimination Incorrect e. Horizontal price fixing

e. Horizontal price fixing

_________________ measures consumers' sensitivity to price changes. Select one: a. Income elasticity of demand b. Inelastic demand price parity c. Competitive profit elasticity of demand d. Cross-price elasticity of demand e. Price elasticity of demand

e. Price elasticity of demand

Julia's is an upscale women's clothing store. Prices are based on customers' beliefs about the value of the clothing. The store focuses on a limited target market and provides excellent customer service. Julia's is using a ________________ pricing strategy. Select one: a. target profit b. target return c. maximizing profits d. status quo e. customer-oriented

e. customer-oriented

Managers of Wendy's fast food restaurants keep track of prices at competitors such as McDonald's, Burger King, and Arby's, knowing that a decrease in the prices at these other fast food restaurants will Select one: a. increase demand for Wendy's products. b. increase the income effect for Wendy's products. c. increase the complementary effect for Wendy's products. d. decrease the income effect for Wendy's products. e. decrease demand for Wendy's products.

e. decrease demand for Wendy's products.

Price skimming focuses on selling products to __________ and __________ in the consumer adoption process model. Select one: a. early adopters; early majority b. late majority; laggards c. early majority; late majority d. laggards; innovators e. innovators; early adopters

e. innovators; early adopters

Cross-price elasticity is the Select one: a. change in price of product A divided by change in quantity demanded for product B. b. percentage change in quantity of a product demanded divided by the percentage change in its price. c. change in quantity of a product demanded divided by the change in its elasticity. d. change in quantity of a product demanded divided by the change in its price. e. percentage change in quantity demanded of product A compared to the percentage change in price of product B.

e. percentage change in quantity demanded of product A compared to the percentage change in price of product B.

Marketers advertising an artificially high regular price are unethically attempting to influence consumers'__________ perceptions. Select one: a. cost-based price b. fixed price c. leader price d. seasonal price e. reference price

e. reference price

David manages a Shoney's restaurant. He is considering staying open later in the evening. For David, the variable costs associated with staying open longer hours will include all of the following EXCEPT Select one: a. ingredients used in preparing food. b. hours worked by cooks. c. energy costs. d. hours worked by the waiters and waitresses. e. rent on the restaurant building.

e. rent on the restaurant building.

The more substitutes that exist in a market, a. the more likely the market will be characterized as an oligopoly. b. the easier it will be to utilize a target profit pricing strategy. c. the greater the income elasticity for each product. d. the lower the price elasticity for each product. e. the more sensitive consumers will be to changes in the price of a particular product.

e. the more sensitive consumers will be to changes in the price of a particular product.

The full price of a product or service includes all of the following EXCEPT Select one: a. shipping. b. travel costs. c. value of the consumer's time. d. taxes. e. the price of alternative products and services.

e. the price of alternative products and services.

One problem in relying on price elasticity and demand curves when setting prices is that Select one: a. competitors can construct the same demand curves, so there is no advantage in using them. b. marketing split from economics over the ideas of demand and elasticity. c. only economists can properly analyze demand curves and set prices using this tool. d. the underlying ideas of the demand curve and elasticity are less relevant in the modern economy. e. the way a product or service is marketed can have a profound impact on price elasticity.

e. the way a product or service is marketed can have a profound impact on price elasticity.

A customer orientation toward pricing implicitly invokes the concept of Select one: a. profit. b. knowing the dimensions of the target market. c. the income effect. d. positioning. e. value.

e. value.