Chapter 19

B. Sales-oriented (Sales-oriented pricing objectives are based either on market share or on dollar or unit sales.)

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

B. Variable (An example of a variable cost is the cost of materials.)

A cost that changes with the level of output is called a(n) _____ cost. a. liquidity b. variable c. fixed d. asset e. elastic

B. Inputs needed to manufacture the product (Inputs at time of manufacture only indirectly affect the demand, if at all.)

All of the following factors directly affect the elasticity of demand EXCEPT: a. other uses of a product b. inputs needed to manufacture the product c. availability of substitute goods d. price relative to a consumer's purchasing power e. product durability

A. Yield management system (A yield management system is complex mathematical software used to profitably filled unused capacity.)

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

E. 50 percent (Retail price - Cost = Markup$45 - $30 = $15$15 ÷ $30 = 50% markup.)

An educational toy store can buy a world globe for $30. If the store owner sells the globe for $45, what is the markup based on cost? a. 15 percent b. 20 percent c. 25 percent d. 33 percent e. 50 percent

D. 33 percent (Price - Cost = Markup$45 - $30 = $15$15 ÷ $45 = 33% markup)

An educational toy store can buy a world globe for $30. If the store owner sells the globe for $45, what is the markup based on the selling price? a. 15 percent b. 20 percent c. 25 percent d. 33 percent e. 50 percent

A. Profit maximization (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.)

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

D. Sales maximization (Sales maximization pricing is a short-term price reduction to increase sales.)

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

A. Continue manufacturing (Diminishing returns have not set in, so the firm should continue manufacturing.)

As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold, a firm should: a. continue manufacturing b. not use formula pricing c. continue using price equilibrium d. consider using sales maximization pricing e. reach its break-even point very shortly

B. Price (Price is that which is given in exchange to acquire a product.)

At Wal-Mart, 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

D. $128.45 ($28.50 + ($19.99 x 5) = $128.45.)

At Wal-Mart, 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 retailer sold one at the $28.50 price and five at the $19.99 price. The retailer's revenue is: a. $8.51 b. $19.99 c. $28.50 d. $128.45 e. $171.00

B. Market share or sales maximization (A lower price allows a company to maximize sales and build market share, but Bugatti's high price is geared towards the other options.)

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

E. Price equilibrium (Price equilibrium is achieved at the price at which supply is equal to demand.)

At a price of $654,400, the SSC Ultimate Aero has been ranked as the third most expensive car in the world. The company is only planning to build 25 of the current model. If that matches the demand for the Ultimate Aero, then a state of _____has been achieved. a. symmetry b. marketing balance c. unitary economics d. commerce stability e. price equilibrium

B. Sales maximization (Sales maximization ignores profit and competition for the purpose of raising cash.)

At the end of the summer, Howard Nursery 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

C. Price equilibrium (When demand and supply are approximately equal, price equilibrium is reached.)

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

A. Payment on the building used by Central Bark (The payment on the building remains the same, no matter how many dogs are visit the resort.)

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

B. 250,000 (Break-even quantity is the total fixed costs ($50,000.00) divided by fixed cost contribution per unit ($0.20).)

Ceylon Express sells bottled pasteurized tea to retailers. It has the following revenues and costs: Sales price per bottle: $0.50 Average variable costs per bottle: $0.30 Total fixed costs (annual): $50,000.00 Tax rate: 20 percent What is the annual break-even point in units for the company? a. 50,000 b. 250,000 c. 100,000 d. 166,667 e. 500,000

B. Consumer demand (Chad's analysis only includes company costs and does not consider consumer demand.)

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 (lumber and nails for the stand, lemons, sugar, etc.). 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

B. $12,000 ([$8,000 ÷ ($125 - $45)] x $125 = $12,500)

Chulo Ibsen makes and sells hand-forged wrought iron fire screens for $125 each. He has determined that his fixed costs are $8,000, and his average variable costs per fire screen are $45. What is his break-even point in dollars? a. $22,550 b. $12,500 c. $10,000 d. $8,000 e. $5,875

E. Elasticity of demand (This is the definition of elasticity of demand.)

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

D. $800 (Markup is selling price minus cost: $1,500 - $700 = $800.)

Cowboy Malone's Electric City pays a wholesaler $700 for a television and sells it to a customer for $1,500. The markup on the television is: a. $240 b. $160 c. $700 d. $800 e. $1,500

B. Inelastic demand schedule (Customers are paying a premium for the convenience of ATM use.)

Critics claim that bank ATMs take advantage of the _____ of customers who suffer a poverty of time and have a strong need for convenience. a. elasticity of demand b. inelastic demand schedule c. unitary supply and demand d. ROI characteristics e. supply characteristics

C. Prestige pricing (Prestige pricing is charging a high price to help promote a high-quality image.)

David likes New Balance running shoes. However, when he stopped by the Foot Locker to buy a new pair of running shoes, he noticed that Nike had a new pair of running shoes that cost $350. To David, the higher price of the Nike shoe indicated that it would be a better pair of running shoes. This is an example of: a. premium pricing b. price lining c. prestige pricing d. exclusive pricing e. selective pricing

D. Sales maximization (The strategy described will maximize sales dollars but will not maximize or improve any of the other objectives in the long term.)

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

E. Promotion strategy (Price is often used as a promotional tool to increase consumer interest.)

During the hot summer months, or the week before a new class starts if there is still space available, the Nick Price golf school in Orlando, Florida, offers a 25 percent reduction to get golfers during the off-season or those making a last-minute decision. This is an example of pricing strategy used as a(n): a. distribution tool b. price enhancer c. product strategy d. direct sales tool e. promotion strategy

E. Price minus the average variable cost (Fixed cost contribution is what is left over after variable costs are covered, so it is equal to price minus the average variable cost.)

Fixed cost contribution equals: a. price times the average fixed cost b. price plus the average variable cost c. average variable cost plus average fixed cost d. break-even quantity times price e. price minus the average variable cost

B. Variable (A cost that changes with the level of output is called a variable cost.)

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

D. Profit oriented, sales oriented, and status quo (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.)

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

C. 3,000 (Break-even quantity equals the total fixed costs ($45,000) divided by the fixed cost contribution per unit ($25 - $10 = $15).)

Furr Friends sells kits for making personalized grave markers for pets. The company sells each kit for $25. The average variable cost for each kit is $10, and the total annual fixed costs for plant operation are $45,000. What is the break-even point in units? a. 1,800 b. 2,500 c. 3,000 d. 4,500 e. 5,000

C. Status quo (This defines status quo pricing.)

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

B. Inelastic demand (A product with high pricing power is said to have inelastic demand.)

If a product has high pricing power, this would indicate a situation of: a. unitary demand b. inelastic demand c. elastic demand d. constant demand e. revenue maximization

A. A price war In the maturity stage, with heavy competition, below-market pricing leads to price wars.)

In the mature and highly competitive furniture industry, you would expect furniture manufacturers to engage in: a. a price war b. price escalation c. prestige pricing d. above-market pricing e. geographical pricing

A. the practice of marking up prices by 100 percent (Keystoning simply doubles the cost.)

Keystoning is: a. the practice of marking up prices by 100 percent b. a method used for determining the point of elasticity c. a plan for reducing marginal costs d. the practice of maintaining variable costs at one-half of total fixed costs e. a method of changing consumers' perceptions about price

A. 350 (With a linear demand curve, the slope of the line will remain constant. In this example, for every $1 that price increases, sales will decrease by 50 cookie cutters.)

Khimaira Farms sells handcrafted cookie cutters. When graphed, the demand schedule for Khimaira Farms brand cookie cutters forms a straight line. If at $3 per cutter, 500 cookie cutters are demanded, and at $4 per cutter, 450 cookie cutters are ordered, how many will be ordered at a price of $6 per cutter? a. 350 b. 450 c. 400 d. 333 e. 375

B. Selling against the brand (Selling against the brand with private labels causes sales of the higher-priced brands to decline.)

Kroger supermarkets will place well-known brands on the shelves at high prices while offering their own Kroger brand at lower prices. This practice is an example of: a. illegal pricing b. selling against the brand c. price pressurization d. brand cutting e. private label cannibalization

C. Buy the most expensive pre-made quiche (perhaps paying too much), guessing that the price is related to quality (Most consumers equate price and quality.)

Laurie knows little about cooking and does not want to spend the time to learn how to make a quiche. However, she has been asked to bring a quiche to an office retirement party. Not wanting to make a poor choice, she is likely to: a. intuitively make the right choice b. avoid making a decision by not attending the party c. buy the most expensive pre-made quiche (perhaps paying too much), guessing that the price is related to quality d. research the product and buy the least expensive frozen quiche she can find e. buy the least expensive frozen quiche because most consumers feel that price is not directly related to quality

A. Require resellers to maintain prices in line with competitors' prices (Manufacturers can also package merchandise with the selling price marked on it or place goods on consignment.)

Manufacturers can do all of the following to regain some control over the price their products are sold for at the retail level EXCEPT: a. require resellers to maintain prices in line with competitors' prices b. developing brand loyalty in consumers by delivering quality and value c. avoiding doing business with price-cutting discounters d. franchising e. using an exclusive distribution system

A. Is a signal of quality (Numerous studies have shown that consumers equate high price with good quality.)

Many consumers, especially when faced with an uncertain purchase decision, think that a high price: a. is a signal of quality b. is an indication that consumers are being ripped off c. will always lead to major price discounts to wholesalers and retailers that distribute it d. is a sign of the company's overall market share e. indicates that the brand was slipping into the decline stage of the product life cycle but has had a sudden resurgence of growth

D. Prestige pricing (Prestige pricing strategy sets high prices to connote high product quality.)

Marketing managers who attempt to raise the quality image of their product by selling it at high prices are following a(n) _____ strategy. a. profit maximization b. market share c. maintained markup pricing d. prestige pricing e. investment asset

C. Fixed (Fixed costs do not change as output changes.)

Mitch owns a pet boarding kennel. The monthly payment on the land he purchased for his kennel, 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

C. Profit (Profit is revenue minus expenses.)

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

A. $1,500 (Marginal cost is the change in total costs associated with a one-unit change in output.)

Monthly output at Leisure-Time, Inc. changed from 12 to 13 prefabricated gazebos, and the total costs changed from $9,000 to $10,500. What is the marginal cost for this company? a. $1,500 b. $2,000 c. $1,200 d. $10,000 e. $12,000

E. Downward and to the right (For most products when prices increase, demand will decrease.)

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

C. 4,000 (With a linear demand curve, the slope of the line will remain constant. In this example, for every $5 increase in price, sales will decrease by 500 beaded purses.)

Personal Touch produces and markets beaded purses. When graphed, the demand schedule for its purses is a straight line. If one purse costs $20, 5,000 beaded purses are sold. At $25, 4,500 purses are sold. How many beaded purses will be sold if the price per purse is increased to $30? a. 5,500 b. 4,250 c. 4,000 d. 3,750 e. 3,500

B. 10 percent (ROI is net profits after taxes divided by total assets: $50,000 ⎟ 500,000 = 10 percent.)

Pierre's Ice Cream Company produces ultra-rich ice cream, which it sells in the Cleveland, Ohio, area. Last year, it managed to exceed its target return on investment (ROI) for the current fiscal year. The following results were found on its financial statements: Gross revenues: $250,000 Total assets: $500,000 Gross profits: $100,000 Total liabilities: $200,000 Net profits after tax: $ 50,000 Owner's equity: $300,000 What was the actual ROI for Parrish Farms? a. 6.67 percent b. 10 percent c. 22 percent d. 28 percent e. 100 percent

B. Uses high prices to promote a high-quality product (Actually, prestige pricing emphasizes all the intangible considerations buyers make when purchasing.)

Prestige pricing: a. equalizes supply and demand b. uses high prices to promote a high-quality product c. is the practice of marking up prices by 100 percent d. is also called leader pricing e. emphasizes the monetary nature of price

A. That which is given up in exchange to acquire a good or service (According to the textbook, price is that which is given up in exchange to acquire a good or service.)

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

C. (When Procter & Gamble reduced prices, sales and revenues increased. This shows that the demand for chips is elastic.)

Procter & Gamble dropped the price of Pringles Potato Chips in the Southeast due to price competition and consumer demand. As a result of the price reduction, P&G increased unit sales and earnings by 10 percent due to: a. reduction in supply b. increases in both supply and demand c. demand being elastic d. demand being inelastic e. market share fluctuations

E. Marginal revenue equals marginal cost (As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold, the firm should continue manufacturing and selling the product, but maximum profit occurs when marginal revenue equals marginal cost.)

Profit maximization occurs when: a. total costs equals average fixed revenue b. average variable costs are larger than average total costs c. total costs equal total variable costs d. marginal variable costs equal average revenues e. marginal revenue equals marginal cost

E. 13,000 (Break-even point = $65,000 ÷ [15 - (100 ÷ 10)] = 13,000)

Regency, Inc. makes disposable cap and gown sets for graduations. Each cap and gown set sells for $15. The average variable cost for manufacturing ten cap and gown sets is $100. Total fixed costs for the year equal $65,000. Calculate the break-even point in units. a. 650 b. 765 c. 1,300 d. 4,334 e. 13,000

E. Equals price of goods times quantity sold (Revenue is the price charged to customers multiplied by the number of units sold.)

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

E. Sales oriented (Sales-oriented pricing objectives are based on either market share or dollar or unit sales.)

Sherrie is seven years old and wants to open a lemonade stand in her neighborhood. 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

D. Provide a means for comparison shopping (Bot is short for robot, and shopping bots theoretically give pricing power to the consumer.)

Shopping bots: a. encourage a more creative use of advertising b. link manufacturers, suppliers, and customers c. create opportunities for prestige pricing d. provide a means for comparison shopping e. create inelastic demand

A. Keystoning (Keystoning is the practice of marking up prices by 100 percent (or doubling the cost to set the selling price).)

The Nest is a retail store owned and operated by an interior designer. The markup on all items in the store is 100 percent over cost (or double the cost). In this case, we would say the designer uses: a. keystoning b. target ROI pricing c. break-even pricing d. marginalizing e. double sourcing

B. Demand; supply (These are the definitions of demand and supply, respectively.)

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; equity b. demand; supply c. supply; demand d. inventory; demand e. inventory; supply

A. Gross margin (Gross margin is the amount added to cost to determine price.)

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

E. All of these choices (Durability and prestige are other dimensions.)

The dimensions of quality that are important to consumers include: a. versatility b. serviceability c. performance d. ease of use e. all of these choices

A. Elastic (If a product has only one use, the quantity purchased probably will not vary as price varies.)

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

D. Prices decreases (The lower the price, the more goods or services will be demanded.)

The manager of a souvenir shop in Florida graphed the demand per week for fresh orange juice. The graph indicates a demand schedule that slopes downward and to the right. This graph indicates that the quantity of juice demanded increases as: a. cost increases b. supply decreases c. price increases d. price decreases e. supply increases

A. Markup (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.)

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

D. $10 (When desired markup is based on selling price, then selling price can be calculated as follows: Retail price = Cost ÷ (1 - Desired return on sales).)

The owner of specialty kitchen retail store wants to determine what price she should put on a set of mixing bowls. They cost her $7. She desires a markup of 30 percent based on selling price. Which of the following is closest to the price she should charge her customers? a. $19 b. $12 c. $15 d. $10 e. $18

D. Maximization of profits (Until the point where MR = MC, each unit of sales has contributed to additional profit; therefore, profit, not revenue or costs, has been maximized at MR = MC.)

The point at which marginal cost and marginal revenue are equal always results in: a. maximization of elasticity b. maximization of revenue c. maximization of costs d. maximization of profits e. break-even equilibrium

C. Demand (The quantity of a product that people will buy depends on its price.)

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

B. Demand (This is the definition of demand.)

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

B. Variable and fixed (A variable cost is a cost that varies with changes in the level of output (e.g., cost of materials), whereas a fixed cost does not change as output is increased or decreased (e.g., rent).)

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

E. Constant average variable cost (Break-even quantity = Total fixed costs ÷ (Price - Average variable cost).)

The typical break-even model assumes a given fixed cost and a: a. variable per unit cost b. constant inventory turnover c. markup cost attained through keystoning d. constant production schedule e. constant average variable cost

B. Earning satisfactory profits (The objective of satisfactory profits is characterized by seeking a level of profits that is satisfactory to management and owner(s).)

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

A. As price goes up, revenue goes down. (If demand is elastic, an increase in price will decrease demand by a larger amount, reducing total revenue.)

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.

B. High initial price, falling slightly when entering the growth stage (A high initial price is used when a new product faces little competition, needs to recoup research and development costs, and has inelastic demand. Prices will fall slightly when entering the growth stage.)

When Apple, Inc. developed and introduced the iPhone, it was unique as it essentially combined a cellular phone with an iPod, an Internet browser, and e-mail capabilities. As such, in the short run, it seemed that demand for the product would be inelastic, with no real existing competition. The recommend pricing strategy in such a situation would be: a. low initial price, rising slightly when entering the growth stage b. high initial price, falling slightly when entering the growth stage c. high price, continuing through growth and maturity d. low price, continuing through growth and maturity e. low price initially, rising constantly through growth and into maturity

B. Profit maximization (Profit maximization means setting prices so that total revenue is as large as possible relative to total costs.)

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

A. Status quo (Status quo pricing is best described as meeting the competition.)

When Delta Airlines raises or lowers its prices on its Atlanta to Chicago route, other airlines tend to make the same changes in their pricing. This is an example of _____ pricing. a. status quo b. target return c. market share d. predatory e. cost-plus

A. Profit-oriented (Target return on investment is one of the most common types of profit-oriented pricing objectives.)

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

A. Elastic (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.)

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

E. Markup (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.)

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

C. Elastic demand (This is the definition of elastic demand.)

When consumers are sensitive to price changes, _____ occurs. a. inelastic demand b. elastic supply c. elastic demand d. inelastic supply e. unitary elasticity

B. Inelastic (This is characteristic of inelastic demand, which means that an increase or decrease in price will not significantly affect the demand for the product.)

When price decreases and total revenue falls, demand is: a. elastic b. inelastic c. absolute d. unitary e. stable

B. Prestige (Prestige pricing strategy sets high prices to connote high product quality and exclusiveness.)

When the Apple iPhone 3G was introduced, the Apple iTunes Web site also began selling small program "apps" written by third parties that could be run on the iPhone. One interesting app was the "I Am Rich" application. For a price of $1,000, you could buy this app that did nothing but display a red gem on the iPhone's screen. The description of the app stated that this red icon would remind you (and others you show it to) "that you were rich enough to afford this." Six of the applications were sold before Apple, Inc. removed the app from iTunes. At the $1,000 price, the author of the app was using _____ pricing as part of his marketing approach. a. snob appeal b. prestige c. exclusive d. selective e. unique

E. Inelastic demand (Inelastic demand is characterized by price and revenue both falling.)

When the NES Group lowered the price of its professional-grade meat slicers from $2,300 to $1,600, 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

A. Equilibrium (Price equilibrium is the price at which demand and supply are equal.)

When the price of a product is set at a level where demand and supply are the same, _____ has been achieved. a. equilibrium b. stability c. leverage d. symmetry e. status quo

E. Postage for shipping spices and herbs (Postage is the only item that varies depending upon the amount of units sold.)

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

C. Price is not necessarily based on the satisfaction consumers receive from a product (Price can relate to anything with perceived value, not just money. The price paid is based on the satisfaction consumers expect to receive from a product, not necessarily what they actually receive.)

Which of the following statements about price is true? a. Price and revenue are synonyms. b. Price always equals some monetary figure. c. Price is not necessarily based on the satisfaction consumers receive from a product. d. High prices result in high profits. e. All of these statements about price are true.

E. With inelastic demand, price will be set low in the introduction stage. (With inelastic demand, prices are set high at introduction.)

Which of the following statements about pricing strategies throughout the product life cycle is NOT true? a. During product decline, prices may also decline until there is only one competitor left in the market. b. Price increases during the maturity stage are cost initiated instead of demand initiated. c. The maturity stage often brings about price decreases. d. Prices stabilize when the product enters the growth stage. e. With inelastic demand, price will be set low in the introduction stage.

C. Business-to-business auctions on the Internet are likely to be more important than consumer auctions in the future. (The Internet has shifted some, but not all, shopping power to consumers. Consumer reviews vary in quality. Fraud is a huge problem.)

Which of the following statements about the Internet is true? a. The Internet has shifted all shopping power to consumers. b. Consumer reviews tend to be equal in quality. c. Business-to-business auctions on the Internet are likely to be more important than consumer auctions in the future. d. Fraud is not a problem on the Internet. e. Extranets are programs that search the Internet for the best price for a particular product.

E. YMS are mathematically complex systems to make use of underutilized capacity and reduce the cost of perishability. (YMS was first used in the airline industry, but it is now used by automobile manufacturers to make use of underutilized capacity.)

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.

A. It is sometimes difficult to ascertain whether a cost is fixed or variable. (Not all costs are easily categorized because a cost may be fixed when viewed in the short term but variable when considered over a longer period of time.)

Which of the following statements describes a limitation associated with break-even analysis? a. It is sometimes difficult to ascertain whether a cost is fixed or variable. b. It requires the calculation of marginal revenue. c. It strictly considers demand. d. It assumes variable cost per item, which is difficult to calculate. e. It can only be expressed as a break-even point in dollar amounts.

E. Status quo pricing requires little planning (Status quo pricing requires little planning because it involves just copying the competitions' pricing policies.)

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.

C. Price means the same thing to the consumer and the seller. (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.)

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.

D. Many substitute products (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.)

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

E. Elastic (If demand is elastic, an increase in price will decrease demand by a larger amount, reducing total revenue, therefore, when Apple decreased the price, demand increased, increasing total revenue.)

While the sales of the Apple iPhone have been great from the beginning, when Apple released its iPhone 3G, it cut the price of the iPhone for $399 to $199. Sales exploded with one million iPhones sold the first weekend. Demand for the iPhone appears to be: a. unitary b. predictable c. synergistic d. inelastic e. elastic

C. The high rate of new-product introductions has led to careful re-evaluation by consumers (With constant new-product introductions, consumers have many alternative goods to choose from, and selecting the right price becomes a very complicated task for the marketing manager.)

Why are marketing managers finding it more difficult to set prices in today's environment? a. Inflationary and recessionary periods have made customers less price sensitive. b. Fewer dealer and generic brands are available because the competition has been eliminated. c. The high rate of new-product introductions has led to careful re-evaluation by consumers. d. Marketing managers are finding it difficult to compare prices between suppliers. e. Buyers are less informed and are less price sensitive.

B. Profitably fill unused capacity (Yield management systems use complex mathematical software to profitability fill unused capacity by discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity.)

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

B. $100 (Fixed cost contribution is the price minus the average variable cost: $350 - $250 = $100.)

Your Memory Lane creates custom art prints that use graphs and icons in a street scene to commemorate special occasions. Suppose that Your Memory Lane has priced its product at $350 per print. Further, it has determined that the company's fixed cost is $12,500, with average variable costs per print of $250. What is the fixed cost contribution per print? a. $225 b. $100 c. $605 d. $2 e. $1

C. 3,000 prints (Break-even quantity equals the total fixed costs ($900,000) divided by the fixed cost contribution per unit ($500 - $200 = $300).)

Your Memory Lane produces custom-made art prints that include graphics and icons to celebrate life's special moments. For example, on his wedding anniversary, David had an art print produced that celebrated highlights of his ten years with his wife, Kathy. Suppose that Your Memory Lane sells the custom artwork for $500. It estimates its average variable costs to be $200 per unit produced. It figures its fixed costs to be $900,000 per year. How many prints does it have to sell to break even? a. 2,000 prints b. 1,200 prints c. 3,000 prints d. 2,500 prints e. 6,000 prints

A. Yield management systems (Yield management systems use complex mathematical software to profitability fill unused capacity by discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity.)

____ 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

D. Marginal (This is the definition of marginal cost.)

_____ 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

C. Fixed (This is the definition of fixed costs.)

_____ costs do not change as output is increased or decreased. a. Asset b. Variable c. Fixed d. Symmetrical e. Status quo

C. Break-even analysis (At the break-even point, costs are equal to revenue, and profit is zero.)

_____ determine what sales volume must be reached before the company's total revenue equals total costs and no profits are earned. a. Marginal revenue estimates b. Price equilibrium analyses c. Break-even analyses d. Average total cost (ATC) figures e. Marginal costs of goods sold

D. Market share (This is the definition of market share, and sales can be reported in dollars or in units of product.)

_____ 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

A. Return on investment (This is the definition of return on investment (ROI).)

_____ 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

B. Marginal revenue (Marginal revenue is also defined as the change in total revenue with a one-unit change in output.)

_____ is the extra revenue associated with selling an additional unit of output. a. Average revenue b. Marginal revenue c. Marginal cost d. Net profit e. Average variable cost

B. Keystoning (This is the definition of keystoning.)

_____ 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

B. Supply (This is the definition of supply.)

_____ 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

C. Unitary elasticity (Unitary elasticity is a situation in which total revenue remains the same when prices change.)

_____ 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

A. Revenues (Revenue is price times units sold, or the total inflow of capital that is available to pay for the costs of manufacturing the good and running the business.)

_____ pay for every activity of the company. a. Revenues b. Investments c. Retained earnings d. Profits e. Price

B. The demand for the good and the cost to the seller (The price 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.)

lthough 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