Chapter 10 BMKT
A manufacturer is trying to determine its break-even volume. With fixed costs of $100,000, a variable cost of $10, and expected sales of 50,000 units, what should the manufacturer's unit cost be to break even? A) $10 B) $12 C) $16 D) $20 E) none of the above
$12
If demand falls by 1 percent when price is increased by 2 percent, then ________. A) elasticity is —1/2 B) demand is inelastic C) demand is elastic D) buyers are not price sensitive E) A and B
A and B
Price setting is usually determined by ________ in large companies. A) top management B) divisional managers C) product line managers D) pricing departments E) both B and C
Both B and C
As a manufacturer increases price, the ________ drops. A) target B) break-even volume C) cost-plus pricing D) total cost E) sales
Break-even volume
Lawyers, accountants, and other professionals typically price by adding a standard markup for profit. This is known as ________. A) variable costs B) cost-plus pricing C) value-based pricing D) break-even price E) penetration pricing
Cost-plus pricing
The company designs what it considers to be a good product, totals the expenses of making the product, and sets a price that adds a standard mark-up to the cost of the product. This approach to pricing is called ________. A) value-based pricing B) fixed cost pricing C) cost-plus pricing D) variable pricing E) skimming pricing
Cost-plus pricing
The simplest pricing method is ________. A) value-based pricing B) going-rate and sealed-bid pricing C) cost-plus pricing D) break-even analysis E) target profit pricing
Cost-plus pricing
When a downward-sloping experience curve exists, a company should usually ________ the selling price of that product in order to bring in higher revenues. A) increase B) greatly increase C) decrease D) not alter E) none of the above
Decrease
Ascot Tires has decided to decrease its prices. The company can expect that ________ for their product will increase. A) cost-plus pricing B) value-based pricing C) demand D) the experience curve E) competition
Demand
With target costing, marketers will first ________ and then ________. A) build the marketing mix; identify the target market B) identify the target market; build the marketing mix C) design the product; determine its cost D) use skimming pricing; penetrating pricing E) determine a selling price; target costs to ensure that the price is met
Determine a selling price; target costs to ensure that the price is met
Consumers who have less time and patience for watching for supermarket specials and clipping coupons would most likely prefer ________. A) variable pricing B) high-low pricing C) EDLP D) break-even pricing E) value-based pricing
EDLP
Jimmy's Hardware, an independent local retailer, is losing business to Wal-Mart. This is most likely because he cannot match Wal-Mart's pricing strategy of ________. A) EDLP B) EFGF C) fixed prices D) negotiated pricing E) skimming pricing
EDLP
Trader Joe's offers an assortment of exclusive gourmet products at impossibly low prices. These prices are not limited-time offers or special discounts. Instead, they reflect Trader Joe's ________ strategy. A) everyday low pricing B) cost-plus pricing C) dynamic pricing D) value-based pricing E) cost-based pricing
Everyday low pricing
________ that influence pricing decisions include the nature of the market and demand and competitors' prices. A) Internal factors B) Elasticity factors C) External factors D) Target factors E) Domestic factors
External factors
An upward-sloping experience curve is beneficial for a company. (T/F)
False
Value-based pricing uses the company's perception of value. (T/F)
False
Costs that do not vary with production or sales level are referred to as ________. A) fixed costs B) variable costs C) target costs D) total costs E) unit costs
Fixed costs
Some companies have adopted a ________ strategy, offering just the right combination of quality and good service at a fair price. A) value-based pricing B) good-value pricing C) cost-plus pricing D) low-price image E) none of the above
Good-value pricing
Consumers usually perceive higher-priced products as ________. A) out of reach for most people B) having high quality C) having high profit margins D) having cost-based prices E) being in the introductory stage of the product life cycle
Having high quality
Which of the following statements about break-even analysis is true? A) It is used to determine how much production experience a company must have to achieve desired efficiencies. B) It is a technique used to calculate fixed costs. C) It determines the amount of retained earnings a company will have during an accounting period. D) It is a technique marketers use to examine the relationship between supply and demand. E) It is calculated using variable costs, the unit price, and fixed costs.
It is calculated using variable costs, the unit price, and fixed costs
Which of the following is true about the demand curve? A) It is used to illustrate the effect of price on the quantity supplied. B) It is always graphically depicted by a straight line. C) It shows the quantity of product customers will buy in a market during a period of time even if other factors change. D) It usually slopes upward and to the right. E) It shows the relationship between product demand and product price.
It shows the relationship between product demand and product price
Ryanair offers free flights to a quarter of its customers and rock-bottom prices to many of its other customers. Ryanair then charges for all extra services, such as baggage handling and in-flight refreshments. Which of the following best describes Ryanair's pricing method? A) value-added pricing B) low-cost pricing C) cost-plus pricing D) high-low pricing E) image pricing
Low-cost pricing
Many people feel that ________ pricing is fairer to both buyers and sellers. Sellers earn a fair return on their investment but do not take advantage of buyers when buyers' demand becomes great. A) variable B) markup C) elasticity D) inelasticity E) penetration
Markup
One reason ________ remains popular is that sellers are more certain about costs than about demand. A) markup pricing B) variable pricing C) inelasticity pricing D) elasticity pricing E) penetration pricing
Markup pricing
Under ________, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A) pure competition B) monopolistic competition C) oligopolistic competition D) pure monopoly E) socialism
Monopolistic competition
The experience curve reveals that ________. A) repetition in production lowers costs B) repetition in production enhances efficiency C) the average cost drops with accumulated production experience D) A, B, and C E) none of the above
None of the above
Price elasticity of demand is ________ divided by ________. A) percent change in quantity demanded; percent change in price B) demand; price C) percent change in price; percent change in quantity demanded D) the going price; the asking price E) none of the above
Percent change in quantity demanded; percent change in price
Amos Zook, an Amish farmer, sells organically grown produce. Often he will trade some of his produce for dairy products produced by other Amish farmers. The sum of the values that others exchange is called a ________. A) price B) cost-plus price C) dynamic price D) common value price E) penetration price
Price
________ is the amount of money charged for a product or service. A) Experience curve B) Demand curve C) Price D) Wage E) Salary
Price
________ describes how responsive demand will be to a change in price. A) Price elasticity B) Break-even pricing C) The demand curve D) Target costing E) Supply
Price elasticity
________ is a company's power to escape price competition and to justify higher prices and margins. A) Variable cost B) Pricing power C) Target cost D) Fixed cost E) Unit cost
Pricing power
________ is an important element in the marketing mix. It is the only element that does not represent costs. A) Current profit maximization B) Market share leadership C) Price D) Product quality leadership E) The target market
Product quality leadership
Under ________, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) anti-trust agreements
Pure competition
Price is the only element in the marketing mix that produces ________. A) revenue B) variable costs C) expenses D) outfixed costs E) stability
Revenue
P&G surveyed the market and identified an unserved segment of electric toothbrush market. Using these results, they created Spinbrush. The unorthodox order of this marketing mix decision is an example of ________. A) competition-based pricing B) cost-plus pricing C) target costing D) value-based pricing E) penetration pricing
Target costing
General Motors prices its automobiles to achieve a 15 to 20 percent profit on its investment. This approach is called ________. A) value-based pricing B) going-rate pricing C) cost-plus pricing D) low-price image E) target-profit pricing
Target-profit pricing
The break-even volume is the point at which ________. A) the total revenue and total costs lines intersect B) demand equals supply C) the production of one more unit will not increase profit D) the company can pay all of its long-term debt E) a firm's profit goal is reached
The total revenue and total costs lines intersect
Nonregulated monopolies are free to price at what the market will bear. However, they do not always charge the full price for a number of reasons. What is NOT one of those reasons? A) They don't want to attract competition. B) They want to penetrate the market faster with a low price. C) They have a fear of government regulation. D) They want to encourage government regulations. E) They want to please a large group of consumers.
They want to encourage government regulations
Companies may set prices low for which of the following reasons EXCEPT ________. A) to prevent competition from entering the market B) to stabilize the market C) to create excitement for a product D) to prepare for an easy exit from a market E) to match a competitor
To prepare for an easy exit from a market
In industrial markets, ________ typically has the final say in setting the pricing objectives and policies of a company. A) the sales manager B) top management C) the production manager D) the finance manager E) the pricing department
Top management
Consumers will base their judgments of a product's value on the prices that competitors charge for similar products (T/F)
True
In a pure monopoly, the market consists of one seller. (T/F)
True
Overhead cost is another term for fixed cost. (T/F)
True
When McDonald's and other fast food restaurants offer "value menu" items at surprisingly low prices, they are using ________. A) break-even pricing B) target profit pricing C) value pricing D) cost-plus pricing E) bundling
Value pricing
Xbox 360 decides to add a free subscription to XBOX magazine with every game bought in an effort to differentiate its offering from PS3 games. This is an example of ________. A) good-value pricing B) add-on pricing C) product-support pricing D) value-added pricing E) cost-based pricing
Value-added pricing
) In ________, price is considered along with the other marketing mix variables before the marketing program is set. A) value-based pricing B) cost-based pricing C) variable costs D) price elasticity E) building the marketing mix
Value-based pricing
Costs that vary directly with the level of production are referred to as ________. A) fixed costs B) variable costs C) target costs D) total costs E) unit costs
Variable costs
If demand is elastic, will sellers consider lowering their prices? Explain.
Yes. A lower price will produce more needed revenue, as consumers will respond to the change in price and buy more.
SRAC is the acronym for which concept related to costs at different levels of production? A) strategic reasoning and costs B) short-run accounting costs C) short-run average cost D) strategic rights and company E) strategic revenues and costs
short-run average cost
