Chapter 19: Pricing Concepts

Anthony has purchased a new shipment of 50 Bluetooth earbuds that he plans to sell for $99.99 each. The manufacturer informs Anthony that each product will cost Anthony $52, but this does not include the cost of transportation. Even with the extra transportation costs, Anthony is not worried. He believes he can sell all 50 earbuds by the end of the month. After adding up inventory, transportation, storage, and other costs, he determines that his total costs will be $3,750. Refer to Scenario 19.4. Anthony thinks that he can sell all 50 Bluetooth earbuds for $99.99 each. His total costs are estimated to be $3,750. However, by the end of the month Anthony has only sold 33 earbuds. What is his profit?

-$450.33

A company's rental of production space is an example of a _______.

fixed cost

To compete effectively on a price basis, a firm should _______.

be the low-cost seller of the product

Spacely Inc.'s sprockets have inelastic demand. If Spacely raises the price of sprockets, what will be the result?

An increase in total revenue

Which of the following is the point at which the costs of producing a product equals the revenue made from selling the product?

Breakeven point

Because gas is inelastic, this makes it a prestige product.

False

ACME Corp.'s widgets have elastic demand. If ACME raises the price of widgets, what will be the result?

A decrease in total revenue

Which of the following is calculated by dividing the variable costs by the number of units produced?

Average variable cost

Which of the following shows the quantity of products a firm expects to sell at various prices if other factors remain constant?

Demand curve

Which of the following is NOT one of the factors that influence the assessment of value?

Elasticity of demand

Fred is angry. He claims his roommate, Edward, stole his idea for a new mobile app. Now Edward has successfully released the app to much fanfare. Fred is demanding that he be compensated for his idea and names what he believes to be a fair price. Edward argues that he is the one who spent the resources developing the app and marketing it. Edward claims that you cannot assess an idea using price as a factor because it is intangible and involved nothing more than having an insightful thought for a new app. Edward is correct in his assertion.

False

Grant thinks he has reached the point where he has maximized his profit. However, because this can be tricky to determine, he is not sure. He decides to test it by selling one more unit. If Grant is correct in his assumption, what should happen when he sells this additional unit?

Marginal cost will exceed marginal revenue

What happens if revenue and cost remain constant?

Prices could be set for maximum profits

ACME Corp. and Spacely Inc. are engaged in intense price competition in order to boost market share of their widgets. This is best described as _______.

a price war

Price is a key element in the marketing mix because it relates directly to the generation of total _______.

revenue