Ch 20 Test Bank
21. A firm has maximized its profits when its marginal revenue exceeds its marginal cost. a. True b. False
ANSWER: False RATIONALE: A firm has maximized its profits when its marginal revenue equals its marginal cost.
26. Adequate distribution for a new product is often obtained by reducing the size of the profit margin for its resellers. a. True b. False
ANSWER: False RATIONALE: Adequate distribution for a new product is often obtained by offering a larger-than-usual profit margin to its distributors.
16. Yield management systems can only be used by service industries. a. True b. False
ANSWER: False RATIONALE: As the popularity of yield management systems increases, their use is spreading beyond service industries.
17. Costs should not be part of price determination, especially not as a floor for long run pricing. a. True b. False
ANSWER: False RATIONALE: Costs should generally be part of any price determination, if only as a floor below which a good or service must not be priced in the long run.
14. When many substitute products are available, demand is inelastic. a. True b. False
ANSWER: False RATIONALE: Demand is elastic when there are many substitute products available.
11. If demand for milk is inelastic, consumers will not change their purchasing habits greatly when the price of milk changes. a. True b. False
ANSWER: True
95. Mitch owns an accounting agency. The monthly payment on the land he purchased for his business, the mortgage on his small office building, and his business license are all examples of ___ costs. a. marginal b. variable c. fixed d. promotional e. demand
ANSWER: c RATIONALE: Fixed costs do not change as output changes.
75. When the NES Group lowered the price of its professional-grade meat slicers from $2,300 to $1,125, demand doubled from four units sold per month to eight units per month. However, total revenue dropped. This is an example of: a. substitute goods b. unitary elasticity c. elastic demand d. consumer shortage e. inelastic demand
ANSWER: e RATIONALE: Inelastic demand is characterized by price and revenue both falling.
38. ___ pay for every activity of the company. a. Revenues b. Investments c. Retained earnings d. Profits e. Prices
ANSWER: a RATIONALE: Revenue is what pays for every activity of the company: production, finance, sales, distribution, and so on.
48. A company using market share pricing has a ___ pricing objective. a. profit-oriented b. sales-oriented c. demand-oriented d. supply-oriented e. status quo
ANSWER: b RATIONALE: Sales-oriented pricing objectives are based either on market share or on dollar or unit sales.
81. What does "YMS" stands for? a. Yorkshire manufacturing sector. b. Yield management systems. c. Yes-man syndrome. d. Yardstick measurement scale. e. Year-end marketing services.
ANSWER: b RATIONALE: The initialism "YMS" stands for yield management systems.
57. Although many factors can influence price, the primary determinants are: a. costs of manufacturing and distribution b. the demand for the good and the cost to the seller c. demand by the consumer and perceived quality d. distribution and promotion strategies e. stage of the product life cycle and costs to the consumer
ANSWER: b RATIONALE: The price that managers set for each product depends mostly on two factors: the demand for the good or service and the cost to the seller for that good or service.
82. Yield management systems were first developed by which industry? a. The manufacturing industry. b. The airline industry. c. The retail industry. d. The healthcare industry. e. The automobile industry.
ANSWER: b RATIONALE: Yield management systems were first developed by the airline industry.
72. ___ occurs when an increase in sales exactly offsets a decrease in price so that total revenue remains exactly the same. a. Inelastic demand b. Functional elasticity of demand c. Unitary elasticity d. Highly elastic demand e. Fixed elasticity
ANSWER: c RATIONALE: Unitary elasticity is a situation in which total revenue remains the same when prices change.
66. Bottles of Pure Hawaiian Air contain air that smells like the floral bouquet that greets tourists as they get off the plane in Hawaii. When a tourist shop began selling Pure Hawaiian Air, it charged $5 per bottle and could not keep up with the demand. It has since raised the price to $7. Now the shop is still selling all the bottles of Pure Hawaiian Air it carries, but the owner is not forced to reorder on a daily basis. The $7 price is probably a(n): a. supply schedule. b. symmetrical price. c. price equilibrium. d. inventory equalizer. e. inelastic price.
ANSWER: c RATIONALE: When demand and supply are approximately equal, price equilibrium is reached.
53. As a short-term pricing objective, ___ can be effectively used on a temporary basis to sell off excessive inventory. a. profit maximization b. profit-oriented pricing c. status quo pricing d. sales maximization e. market share pricing
ANSWER: d RATIONALE: Sales maximization pricing is a short-term price reduction to increase sales.
96. ___ cost is the change in total costs associated with a one-unit change in output. a. Variable b. Intermittent c. Elastic d. Marginal e. Flex
ANSWER: d RATIONALE: This is the definition of marginal cost.
49. ___ is a company's product sales as a percentage of total sales for that industry. a. Return on investment b. Profit share c. Revenue share d. Market share e. Contribution
ANSWER: d RATIONALE: This is the definition of market share, and sales can be reported in dollars or in units of product.
79. Which of the following would imply elastic demand? a. Price is low relative to purchasing power b. Nondurable product c. Low inflation rate d. Many substitute products e. All of these choices
ANSWER: d RATIONALE: When there are many substitute products, the consumer can easily switch from one product to another, making demand elastic. The other situations make demand inelastic.
60. Most demand curves slope: a. horizontally b. upward and to the right c. downward and to the left d. vertically e. downward and to the right
ANSWER: e RATIONALE: For most products when prices increase, demand will decrease.
47. Britney is fifteen years old and wants to open her own business selling cupcakes to local coffee shops and restaurants. She is having a tough time deciding whether to base her pricing objectives on market share, dollar sales, or unit sales. Regardless of which she chooses, her pricing objective can be categorized as: a. status quo. b. profit oriented. c. need oriented. d. cost oriented. e. sales oriented.
ANSWER: e RATIONALE: Sales-oriented pricing objectives are based on either market share or dollar or unit sales.
88. Total variable costs divided by quantity of output equals: a. average total cost b. mean intermittent cost c. fixed cost d. marginal cost e. average variable cost
ANSWER: e RATIONALE: This is the definition of average variable cost.
12. Research indicates that when a country's inflation rate is high, demand becomes more elastic. a. True b. False
ANSWER: False RATIONALE: If E is greater than 1, demand is elastic.
8. In most communities, the price of gas is more or less the same at all area service stations. This is an example of sales-oriented pricing. a. True b. False
ANSWER: False RATIONALE: It is an example of status quo pricing. Status quo pricing seeks to maintain existing prices or to meet the competition's prices.
7. Maximization of cash should be a long-term objective. a. True b. False
ANSWER: False RATIONALE: Maximization of cash should never be a long-run objective because cash maximization may mean little or no profitability. Without profits, a company cannot survive.
10. Profit maximization is the price at which supply and demand are equal, and there is no inclination for prices to rise or fall. a. True b. False
ANSWER: False RATIONALE: Price equilibrium is the price at which supply and demand are equal, and there is no inclination for prices to rise or fall.
1. Price is defined as the value of a good or service as measured by a certain dollar amount. a. True b. False
ANSWER: False RATIONALE: Price is not necessarily measured in terms of money. In bartering, other items of value may be exchanged.
30. Price should not be used as a promotional tool. a. True b. False
ANSWER: False RATIONALE: Price is often used as a promotional tool to increase consumer interest.
4. The only way to maximize profits is to reduce costs by operating more efficiently. a. True b. False
ANSWER: False RATIONALE: Profit maximization can also be achieved by expanding revenue by increasing customer satisfaction. Companies can also attempt to reduce costs and expand revenue at the same time.
19. The owner of Buffalo Mountain Coffee Shop pays the same amount in rent each month no matter how many customers she serves. The shop owner's rent is an example of a marginal cost. a. True b. False
ANSWER: False RATIONALE: Rent would be an example of a fixed cost.
29. Even though businesses are spending billions on Internet auctions, consumer auctions are likely to be the dominant form in the future. a. True b. False
ANSWER: False RATIONALE: The opposite appears to be true.
28. There are three general types of shopping bots: broad-based, niche-oriented, and enterprise-level. a. True b. False
ANSWER: False RATIONALE: There are two general types of shopping bots. The first is the broad-based type that searches a wide range of product categories. The second is the niche-oriented type that searches for prices for only one type of product.
32. Research has shown that products perceived to be of high quality tend to benefit less from price promotions than products perceived to be of lower quality. a. True b. False
ANSWER: False RATIONALE: They tend to benefit more from price promotions that products perceived to be of lower quality.
2. Profit is the price charged to customers multiplied by the number of units sold. a. True b. False
ANSWER: False RATIONALE: This is revenue. Profit is revenue minus expenses.
9. When pricing goals are mainly sales oriented, cost considerations usually dominate. a. True b. False
ANSWER: False RATIONALE: When pricing goals are mainly sales oriented, demand considerations usually dominate.
18. Variable costs vary with changes in the level of output, whereas marginal costs do not vary as output changes. a. True b. False
ANSWER: False RATIONALE: While variable costs do vary with changes in the level of output, marginal costs are the changes in total costs associated with a one-unit change in output.
15. Yield management systems employ techniques such as discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity. a. True b. False
ANSWER: True
20. Markup pricing, adding an amount to cost to cover expenses and profit, is the most popular method used by wholesalers and retailers to establish a selling price. a. True b. False
ANSWER: True
22. Break-even analysis determines what sales volume must be reached before total revenue equals total costs. a. True b. False
ANSWER: True
23. As products enter the growth stage of the product life cycle, prices generally begin to stabilize. a. True b. False
ANSWER: True
24. The manufacturers that remain in the market toward the end of the maturity stage typically offer similar prices. a. True b. False
ANSWER: True
27. One strategy to get adequate distribution for a new product is to offer dealers a large trade allowance to help offset the costs of promotion. a. True b. False
ANSWER: True
3. Today's firms must develop specific, measurable, and attainable pricing objectives if they hope to survive in highly competitive markets. a. True b. False
ANSWER: True
31. High purchase prices may create feelings of pleasure and excitement in consumers. a. True b. False
ANSWER: True
5. Target return on investment is the most common profit objective used by firms. a. True b. False
ANSWER: True
6. Market share is a company's product sales as a percentage of its total sales for that industry. a. True b. False
ANSWER: True
13. Unitary elasticity means that an increase in sales exactly offsets a decrease in prices, so total revenue remains the same. a. True b. False
ANSWER: True OTHER: BLOOMS Level IV Analysis
25. Prices always steadily decline for a product in the decline stage of the product life cycle. a. True b. False
ANSWER: True RATIONALE: When only one firm is left in the market, prices begin to stabilize, but they may eventually rise dramatically if the product survives and moves into the specialty goods category, as horse- drawn carriages and vinyl records have.
85. Allstate has more than 1,500 price levels determined by complex algorithms that analyze 16 credit report variables, including late payments and card balances. Allstate is using a ___ to set prices. a. yield management system b. capacity correlation system c. service forecasting tools d. service management system e. capacity maintenance tool
ANSWER: a RATIONALE: A yield management system is complex mathematical software used to profitably fill unused capacity.
99. The difference between the retailer's cost and the selling price is the: a. gross margin. b. markup percentage. c. profit. d. keystone. e. breakeven profit.
ANSWER: a RATIONALE: Gross margin is the amount added to cost to determine price.
80. The greater the number of different uses for a product, the more ___ demand tends to be. a. elastic b. inelastic c. unitary d. volatile e. stable
ANSWER: a RATIONALE: If a product has only one use, the quantity purchased probably will not vary as price varies.
70. What happens when demand is elastic? a. As price goes up, revenue goes down. b. As price goes down, revenue goes down. c. As price goes up, revenue goes up. d. As price goes up, revenue does not change. e. As price goes down, revenue does not change.
ANSWER: a RATIONALE: If demand is elastic, an increase in price will decrease demand by a larger amount, reducing total revenue
98. The most popular method used by wholesalers and retailers in establishing a sales price is ___ pricing. a. markup b. status quo c. formula d. marginal revenue e. break-even
ANSWER: a RATIONALE: Markup pricing does not directly analyze the costs of production; rather, is uses the cost of buying the product from the producer, plus amounts for profit and for expenses otherwise not accounted for.
64. When the price of a product is set at a level where demand and supply are the same, price ___ has been achieved. a. equilibrium b. stability c. leverage d. symmetry e. status quo
ANSWER: a RATIONALE: Price equilibrium is the price at which demand and supply are equal.
33. Price is best described as: a. that which is given up in exchange to acquire a good or service b. money exchanged for a good or service c. the psychological results of purchasing d. the cost in dollars for a good or service as set by the producer e. the value of a barter good in an exchange
ANSWER: a RATIONALE: Price is that which is given up in exchange to acquire a good or service.
42. An organization is using ___ when it sets its prices so that total revenue is as large as possible relative to total costs. a. profit maximization b. market share pricing c. demand-oriented pricing d. sales maximization e. status quo pricing
ANSWER: a RATIONALE: Profit maximization is a type of profit-oriented pricing objective and means setting prices so that total revenue is as large as possible relative to total costs.
55. When the local Shell station raises or lowers its prices on its gasoline, the Marathon station across the street makes the same changes in its pricing. This is an example of ___ pricing. a. status quo b. target return c. market share d. predatory e. cost-plus
ANSWER: a RATIONALE: Status quo pricing is best described as meeting the competition.
44. When Insight Research Associates quotes a marketing research project, management will first estimate the cost to conduct the research and produce and deliver the final client report. The next step in determining the price is to add 30 percent to that cost estimate. This becomes the price estimate given to the potential research client. This suggests that Insight Research Associates uses a(n) ___ pricing objective. a. profit-oriented b. market share maximization c. status quo d. sales maximization e. supply-demand equalization
ANSWER: a RATIONALE: Target return on investment is one of the most common types of profit-oriented pricing objectives.
76. When Nesco brand food hydrators sold for $59.99, Nesco sold 90 dehydrators. When the company dropped the price of its dehydrators to $44.95, it sold 145 dehydrators. Demand for the food dehydrators appears to be: a. elastic. b. inelastic. c. unitary. d. symmetrical. e. asymmetrical.
ANSWER: a RATIONALE: The first price is $59.99 with total revenue of $5,399.10; the second price is $44.95 with total revenue of $6,517.75. Therefore, price dropped, and total revenue went up. TOPICS: AACSB Analytic
94. Central Bark is a dog resort where pets are pampered. Which of the following is the BEST example of one of its fixed costs? a. Payment on the building used by Central Bark b. Dog biscuits c. Dog collars and leashes d. Bubble bath e. Advertisements in local magazines
ANSWER: a RATIONALE: The payment on the building remains the same, no matter how many dogs are visit the resort. OTHER: BLOOMS Level VI Evaluation
46. ___ is equal to net profit after taxes divided by total assets. a. Return on investment b. Economic order quantity c. Target-on-sales d. Retained earnings e. Efficiency maximization
ANSWER: a RATIONALE: This is the definition of return on investment (ROI).
84. ___ use complex mathematical software to profitably fill unused capacity. a. Yield management systems b. Capacity correlation systems c. Service forecasting tools d. Service management systems e. Capacity management software
ANSWER: a RATIONALE: Yield management systems use complex mathematical software to profitably fill unused capacity by discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity.
92. For a nail salon, the costs associated with the purchase of nail polish and other products like nail polish remover, sterilized equipment, laundry service for the towels, and the beverages given to customers, are all examples of _____ costs. a. marginal b. variable c. fixed d. promotional e. liquidity
ANSWER: b RATIONALE: A cost that changes with the level of output is called a variable cost.
50. At a price of $1,192,057, the Bugatti Veyron may be the most expensive street-legal car on the market today. Obviously, Bugatti is NOT using a(n) ___ pricing objective in setting the price for this car. a. inelastic or supply-oriented b. market share or sales maximization c. profit maximization or target return on investment d. status quo or satisfactory profits e. demand-oriented or supply-oriented
ANSWER: b RATIONALE: A lower price allows a company to maximize sales and build market share, but Bugatti's high price is geared towards the other options.
89. The two types of costs a marketer needs to consider when setting prices are: a. primary and secondary. b. variable and fixed. c. marginal and absolute. d. short term and long term. e. elastic and inelastic.
ANSWER: b RATIONALE: A variable cost is a cost that varies with changes in the level of output (such as cost of materials), whereas a fixed cost does not change as output is increased or decreased (such as rent).
90. A cost that changes with the level of output is called a(n) ___ cost. a. liquidity b. variable c. fixed d. asset e. elastic
ANSWER: b RATIONALE: An example of a variable cost is the cost of materials.
87. Chad has calculated the sales volume at which his lemonade stand's costs equal revenue. Over dinner, he announced to his family that he only needed to sell 50 glasses of lemonade at $5 per glass to cover all his costs (such as lumber and nails for the stand, lemons, and sugar). Which important factor has Chad excluded from his analysis? a. Fixed and variable cost determination b. Consumer demand c. Target return pricing d. Break-even analysis e. Market share
ANSWER: b RATIONALE: Chad's analysis only includes company costs and does not consider consumer demand.
77. Demand for which of the following products or services is most likely inelastic? a. Fishing boats b. Wheat bread c. Pedicures d. Filet mignon steaks e. Digital cameras
ANSWER: b RATIONALE: If there is a crop shortage, prices escalate, but consumers still maintain the same level of demand because food—particularly bread—is a necessity.
78. All of the following factors directly affect the elasticity of demand EXCEPT: a. a product's other uses. b. inputs needed to manufacture the product. c. availability of substitute goods. d. price relative to a consumer's purchasing power. e. product durability.
ANSWER: b RATIONALE: Inputs at time of manufacture only indirectly affect the demand, if at all.
34. At Walmart, Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer. The items, which were sold together, retailed at $28.50 but were marked down to $19.99. The $19.99 is the: a. revenue. b. price. c. profit. d. liquidity value. e. amortized value.
ANSWER: b RATIONALE: Price is that which is given in exchange to acquire a product.
43. When Apple, Inc. originally introduced its iPhone, it was priced at what many believed to be about as high as the market would allow. Within weeks, Apple lowered the price of the iPhone. It appears that Apple entered the market with a ___ approach to pricing the iPhone. a. market share pricing b. profit maximization c. demand-oriented d. sales maximization e. status quo pricing
ANSWER: b RATIONALE: Profit maximization means setting prices so that total revenue is as large as possible relative to total costs.
51. At the end of the summer, the Bloomin' Garden Center reduced the price on all of its plants, fertilizer, and potting soil by 50 percent in order to liquidate this inventory. What type of pricing strategy is being used in this example? a. Supply oriented b. Sales maximization c. Target return on investment d. Satisfactory profit e. Profit maximization
ANSWER: b RATIONALE: Sales maximization ignores profit and competition for the purpose of raising cash.
45. Thompson Pool and Patio is known for quality pool installations, excellent customer service, and reasonable prices. If you want to have a Thompson pool, you will have to wait about six months due to demand for their product. While Thompson could probably price its product higher, given the demand, they don't. Instead, the company sets its price so that it will earn a reasonable level of profits. Thompson seems to base its pricing policy on: a. profit maximization. b. earning satisfactory profits. c. creating retained earnings. d. making the most money as possible. e. decreasing consumer demand.
ANSWER: b RATIONALE: The objective of satisfactory profits is characterized by seeking a level of profits that is satisfactory to management and owner(s).
62. The ___ is the quantity of a product that will be sold in the market at various prices for a specified period, and ___ is the quantity of a product that will be offered to the market by suppliers at various prices for a specified period. a. demand; inventory b. demand; supply c. supply; demand d. inventory; demand e. inventory; supply
ANSWER: b RATIONALE: These are the definitions of demand and supply, respectively.
73. When price decreases and total revenue falls, demand is: a. elastic. b. inelastic. c. absolute. d. unitary. e. stable.
ANSWER: b RATIONALE: This is characteristic of inelastic demand, which means that an increase or decrease in price will not significantly affect the demand for the product.
58. The quantity of a product that will be sold in the market at various prices for a specified period is called: a. market share. b. demand. c. supply. d. value. e. revenue.
ANSWER: b RATIONALE: This is the definition of demand.
100. ___ is the practice of marking up prices by 100 percent (or doubling the cost to set the selling price). a. Margin pricing b. Keystoning c. Mark-on adding d. Formula doubling e. Symmetrical pricing
ANSWER: b RATIONALE: This is the definition of keystoning.
63. ___ is the quantity of a product that will be offered to the market at various prices for a specified period. a. Distribution b. Supply c. Price d. Equilibrium e. Elasticity
ANSWER: b RATIONALE: This is the definition of supply.
83. Yield management systems are used to: a. determine the availability of product substitutes in complex industries that are experiencing rapid change b. profitably fill unused capacity c. predict necessary service levels to achieve revenue goals d. determine whether it is financially more feasible to buy a new product or repair a broken one e. create elastic demand for low-involvement products
ANSWER: b RATIONALE: Yield management systems use complex mathematical software to profitably fill unused capacity by discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity.
71. If price ___ and revenue ___ , demand is elastic. a. stays the same; stays the same b. goes down; goes down c. goes down; goes up d. goes down; stays the same e. goes up; stays the same
ANSWER: c RATIONALE: If price goes down and revenue goes up, demand is elastic.
40. Which of the following is not a real trend that has affected the consumer market? a. The increased availability of bargain-priced private and generic brands has put downward pressure on overall prices. b. Buyers evaluate the price of new products against the value of existing products. c. Many firms are trying to maintain or regain their market share by raising prices. d. The Internet has made comparison shopping easier. e. The United States was in a recession from late 2007 until 2009.
ANSWER: c RATIONALE: Many firms are trying to maintain or regain their market share by cutting prices.
35. Which of the following statements is NOT true about price? a. Price can relate to anything with perceived value, not just money. b. Price is that which is given up in an exchange to acquire a product. c. Price means the same thing to the consumer and the seller. d. The price paid is based on the satisfaction consumers expect to receive from a product. e. Customers are interested in obtaining a perceived reasonable price.
ANSWER: c RATIONALE: Price means one thing to the consumer and something else to the seller. To the consumer, it is the cost of something. To the seller, price is revenue, the primary source of profits.
39. Money that is left over after paying for company activities is called: a. return on investment. b. a contribution margin. c. profit. d. net worth. e. a current asset.
ANSWER: c RATIONALE: Profit is revenue minus expenses.
59. The price of the good or service is a key decision for a marketer because it most significantly and directly affects the product's: a. distribution. b. costs. c. demand. d. promotion. e. quality.
ANSWER: c RATIONALE: The quantity of a product that people will buy depends on its price.
54. If a company's pricing objective is to meet the competition or to maintain existing prices, it is using ___ pricing. a. head-on b. target return on investment c. status quo d. market share e. demand-oriented
ANSWER: c RATIONALE: This defines status quo pricing.
36. When goods and services are exchanged, the trade is called: a. exchange. b. substitution. c. barter. d. swap. e. bargaining.
ANSWER: c RATIONALE: This is the definition of barter.
68. When consumers are sensitive to price changes, ___ occurs. a. inelastic demand b. elastic supply c. elastic demand d. inelastic supply e. unitary elasticity
ANSWER: c RATIONALE: This is the definition of elastic demand.
93. ___ costs do not change as output is increased or decreased. a. Asset b. Variable c. Fixed d. Symmetrical e. Status quo
ANSWER: c RATIONALE: This is the definition of fixed costs.
74. If price goes up or down and revenue stays the same: a. elasticity is universal. b. elasticity is quantum. c. elasticity is solitary. d. elasticity is unitary. e. None of the above.
ANSWER: d RATIONALE: If price goes up or down and revenue stays the same, elasticity is unitary.
41. For convenience, pricing objectives can be divided into three categories. They are: a. refundable, competitive, and attainable b. perceived, actual, and unique-situational c. differentiated, niche, and undifferentiated d. profit oriented, sales oriented, and status quo e. monopolistic, fixed, and variable
ANSWER: d RATIONALE: Profit-oriented objectives include profit maximization, satisfactory profits, and target return on investment. Sales-oriented pricing objectives are based either on market share or on dollar or unit sales. Status quo pricing seeks to maintain existing prices or to meet the competition's prices.
61. Peggy's Twist Shack sells softserve ice cream. Peggy graphed the demand per week for vanilla ice cream cones. The graph indicates a demand schedule that slopes downward and to the right. This graph indicates that the quantity of vanilla ice cream cones demanded increases as: a. cost increases. b. supply decreases. c. price increases. d. price decreases. e. supply increases.
ANSWER: d RATIONALE: The lower the price, the more goods or services will be demanded.
52. Dixie Furniture Company has recently moved to a new, larger location. At this new location, it has been unable to attract sufficient customers. Its owner did not have the cash to pay the current loan installment due on the building and inventory, so he decided to reduce all merchandise prices by at least 50 percent for a weekend sale to earn enough to make his loan payment. His pricing objective can be classified as: a. market share maximization. b. satisfactory profits. c. asset maximization. d. sales maximization. e. target ROI.
ANSWER: d RATIONALE: The strategy described will maximize sales dollars but will not maximize or improve any of the other objectives in the long term.
69. While the sales of the Apple iPhone have been great from the beginning, when Apple released its iPhone 4S and cut the price of the iPhone 4 from $399 to $199, sales exploded with one million iPhone 4 models sold the first weekend. Demand for the iPhone appears to be: a. unitary. b. predictable. c. synergistic. d. inelastic. e. elastic.
ANSWER: e RATIONALE: Elastic demand occurs when consumers by more or less of a product when the price changes.
97. When a seller determines the selling price by adding to cost an amount for profit and expenses not previously accounted for, the seller is using ___ pricing. a. profit maximization b. demand-oriented c. break-even d. target return e. markup
ANSWER: e RATIONALE: Markup pricing does not directly analyze the costs of production; rather, is uses the cost of buying the product from the producer, plus amounts for profit and for expenses otherwise not accounted for.
91. Which of the following is most likely to be a variable cost for an Internet retailer that sells spices, herbs, and seasonings to consumers? a. Annual lease on mixer used to blend seasonings b. Executive salaries c. Rent for building where spices and herbs are repackaged for consumers d. Workers' insurance e. Postage for shipping spices and herbs
ANSWER: e RATIONALE: Postage is the only item that varies depending upon the amount of units sold.
65. At a price of $6,000, only 191 of the Moulton 60 model bicycle are being made. If Moulton sells each one of the bicycles at that price, then a state of ___ has been achieved. a. symmetry b. marketing balance c. unitary economics d. commerce stability e. price equilibrium
ANSWER: e RATIONALE: Price equilibrium is achieved at the price at which supply is equal to demand.
37. Revenue: a. equals quantity sold times profit margin b. equals price minus costs c. equals return on investment d. is synonymous with profit e. equals price of goods times quantity sold
ANSWER: e RATIONALE: Revenue is the price charged to customers multiplied by the number of units sold.
56. Which of the following statements describes an advantage of status quo pricing? a. Status quo pricing is derived from actual costs of manufacturing. b. Status quo pricing maintains the organization's differential advantage. c. Status quo pricing is active, not reactive. d. Status quo pricing causes price wars. e. Status quo pricing requires little planning.
ANSWER: e RATIONALE: Status quo pricing requires little planning because it involves just copying the competitions' pricing policies.
67. Consumers' responsiveness or sensitivity to changes in price is known as: a. break-even. b. Equilibrium. c. unitary revenue. d. asymmetrical demand. e. elasticity of demand.
ANSWER: e RATIONALE: This is the definition of elasticity of demand.
86. Which of the following statements about yield management systems (YMS) is true? a. The first use of YMS was in the U.S. car industry as it looked for ways to compete with imports. b. YMS eliminate the problem of simultaneous production and consumption from services. c. YMS cannot be used by any other businesses but services. d. YMS are complex pricing systems used to set equilibrium pricing points. e. YMS are mathematically complex systems to make use of underutilized capacity and reduce the cost of perishability.
ANSWER: e RATIONALE: YMS was first used in the airline industry, but it is now used by automobile manufacturers to make use of underutilized capacity.
