CHAPTER 10
10) Underpriced products sell very well, but they produce less revenue than they would have if price were raised to the ________ level. A) perceived value B) value-based C) variable D) demand curve E) price-floor
A
126) When Circuit Town Electronics sets its televisions at three price levels of $699, $899, and $1,099, it is using ________. A) product line pricing B) market-skimming pricing C) market-penetration pricing D) break-even pricing E) target return pricing
A
2) Price is the only element in the marketing mix that produces ________. A) revenue B) variable costs C) expenses D) fixed costs E) stability
A
29) Price setting is usually determined by ________ in small companies. A) top management B) marketing departments C) sales departments D) divisional managers E) cross-functional teams
A
31) 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
A
34) The relationship between the price charged and the resulting demand level can be shown as the ________. A) demand curve B) variable cost C) target cost D) break-even chart E) experience curve
A
35) ________ describes how responsive demand will be to a change in price. A) Price elasticity B) Break-even pricing C) The break-even chart D) Target costing E) Supply
A
39) A company should set prices that will allow ________ to receive a fair profit. A) resellers B) producers C) consumers D) the elderly E) competitors
A
40) When companies set prices, the government and social concerns are two ________ affecting pricing decisions. A) external factors B) internal factors C) economic conditions D) demand curves E) temporary influences
A
44) A firm is using ________ when it charges a high, premium price for a new product with the intention of reducing the price in the future. A) price skimming B) trial pricing C) value pricing D) market-penetration pricing E) prestige pricing
A
47) A challenge for management in product line pricing is to decide on the price steps between the ________. A) various products in a line B) product mixes C) product groupings D) product lines E) various target markets
A
20) 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 return pricing
C
26) ________ that influence pricing decisions include the nature of the market and demand. A) Internal factors B) Elasticity factors C) External factors D) Target factors E) Domestic factors
C
3) Consumer perceptions of the product's value set the ________ for prices. A) demand curve B) floor C) ceiling D) variable cost E) image
C
33) Under ________, the market consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) capitalism
C
117) 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 return pricing
E
125) Market-skimming pricing would likely be most effective in selling ________. A) any convenience item B) an electronic device for which research and development must be recouped C) shampoo and bath soap D) anything easily copied by competitors E) most items at EDLP retailers such as Wal-Mart
B
16) Costs that vary directly with the level of production are referred to as ________ costs. A) fixed B) variable C) target D) total E) unit
B
23) Break-even pricing, or a variation called ________, is when the firm tries to determine the price at which it will break even or make the profit it is seeking. A) competition-based pricing B) target return pricing C) fixed cost D) value-based pricing E) customer-based pricing
B
25) Which of the following is an external factor that affects pricing decisions? A) the salaries of production management B) competition C) the salaries of finance management D) overall pricing objectives E) the company's overall marketing strategy
B
32) 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) a pure monopoly E) socialism
B
36) If demand hardly changes with a small change in price, we say the demand is ________. A) variable B) inelastic C) value-based D) at break-even pricing E) market penetrating
B
38) Each of the following economic factors can have a strong impact on a firm's pricing strategy EXCEPT ________. A) an economic boom B) the reseller's reaction to price changes C) an economic recession D) inflation E) interest rates
B
41) A company sets not a single price, but rather a ________ that covers different items in its line that change over time as products move through their life cycles. A) pricing by-product B) pricing structure C) pricing loop D) pricing cycle E) pricing bundle
B
45) ________ pricing is the approach of setting a low initial price in order to attract a large number of buyers quickly and win a large market share. A) Market-skimming B) Market-penetration C) Below-market D) Value-based E) Leader
B
48) When using price steps, the seller must establish perceived ________ that support the price differences among the products in the line. A) nonprice competition B) value differences C) quantity levels D) images E) strategies
B
49) Companies involved in deciding which items to include in the base price and which to offer as options are engaged in ________ pricing. A) product bundle B) optional-product C) captive-product D) by-product E) skimming
B
51) Hotline Long Distance Service uses captive-product pricing for its phone call charges. Because this is a service, the price is broken into a fixed rate plus a per-call ________. A) fixed rate usage B) variable usage rate C) standard usage rate D) market usage rate E) fixed fee
B
6) In ________, price is considered along with the other marketing mix variables before the marketing program is set. A) target return pricing B) value-based pricing C) variable costs D) price elasticity E) cost-based pricing
B
55) Trade or functional discounts are offered by manufacturers to which of the following? A) channel members who perform tasks that the manufacturer would otherwise have to perform B) consumers who earn a price reduction for buying in bulk C) intermediaries such as financing institutions as a cost of doing business with them D) manufacturers that agree to exclusive distribution contracts E) the government market and other organizations that require bid proposals
A
57) By definition, this type of pricing is used when a firm sells a product or service at two or more prices, even though the difference in price is not based on differences in cost. A) segmented pricing B) variable pricing C) flexible pricing D) cost-plus pricing E) reference pricing
A
64) When a manufacturer offers a ________, customers buy products from manufacturers' dealers within a specified time period and the manufacturer sends the customer a check. A) cash rebate B) special event price C) dealer reduction D) promotional pricing reward E) discount allowance
A
70) Which of the following is a reason for a company to raise its prices? A) to address the issue of overdemand for a product B) to win a larger share of the market C) to use excess capacity D) to boost sales volume E) to balance out decreasing costs
A
46) All of the following conditions support market-penetration pricing EXCEPT which one? A) The market must be highly price sensitive. B) Production and distribution costs must fall as sales volume increases. C) The product's quality and image must support the price. D) The low price must help keep out the competition. E) A low price will produce more market growth.
C
50) It is most typical for producers who use captive-product pricing to set the price of the main product ________ and set ________ on the supplies necessary to use the product. A) low; low markups B) high; low markups C) low; high markups D) high; high markups E) moderately; moderate markups
C
52) When amusement parks and movie theaters charge admission plus fees for food and other attractions, they are following a(n) ________ pricing strategy. A) by-product B) optional-product C) captive-product D) skimming E) penetration
C
11) ________ involves charging a constant low price with few or no temporary price discounts. A) High-low pricing B) Target return pricing C) Cost-plus pricing D) Everyday low pricing (EDLP) E) Penetration pricing
D
116) 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
D
53) With product bundle pricing, sellers can combine several products and offer the bundle ________. A) as a working unit B) at a reduced price C) as a complete self-service package D) as a reward to loyal customers E) as segmented pricing
B
54) A quantity discount is a price reduction to buyers who purchase ________. A) frequently B) large volumes C) close outs D) inferior merchandise E) superior merchandise
B
122) If Canon Camera Company follows a high-price, high-margin strategy, what will competitors most likely do? A) They will go out of business. B) They will want to compete by undercutting Canon's price. C) They will advertise less. D) They will unbundle their products. E) They will use market-skimming pricing.
B
123) When Pepsi came out with Pepsi Blue and priced it at half price to attract buyers, Pepsi was using ________. A) marketing-skimming pricing B) market-penetration pricing C) new-product pricing D) discount pricing E) promotional allowances
B
124) Johnson Boats wants to introduce a new model of boat into mature markets in highly developed countries with the goal of quickly gaining mass-market share. As a consultant, you should recommend a ________ pricing strategy. A) market-skimming B) market-penetration C) zone D) discount E) captive-product
B
127) The fact that a hot dog cost five times more at Disneyland than at Sam's Club is an example of ________. A) allowance pricing B) captive-product pricing C) penetration pricing D) segmented pricing E) promotional pricing
B
120) In Lima, Peru, 20 stores specializing in selling the same quality and brand of wheat products are located on one street. An individual seller cannot charge more than the going price without the risk of losing business to the other stores. This is an example of what type of market? A) pure competition B) monopolistic competition C) oligopolistic competition D) pure monopoly E) socialist
A
132) Busch Stadium in St. Louis charges different prices for seats in different areas of the ballpark, even though their costs are the same. What is this form of pricing called? A) location-based B) skimming C) product-form D) time-based E) penetration
A
15) Costs that do not vary with production or sales level are referred to as ________ costs. A) fixed B) variable C) target D) total E) unit
A
17) Rent, electricity, and executive salaries are examples of ________ costs. A) fixed B) variable C) total D) accumulated E) marketing
A
5) ________ uses buyers' perceptions of what a product is worth, not the seller's cost, as the key to pricing. A) Value-based pricing B) Target return pricing C) Variable costs D) Price elasticity E) Product image
A
73) The Sherman, Clayton, and Robinson-Patman Acts are all federal laws that were enacted to curb the formation of ________. A) monopolies B) oligopolies C) competitive markets D) international markets E) limited partnerships
A
118) A company faces fixed costs of $100,000 and variable costs of $8.00/unit. They plan to directly sell their product to the market for $12.00. How many units must they produce and sell to break even? A) 20,000 B) 25,000 C) 40,000 D) 50,000 E) not enough information to calculate
B
12) When there is price competition, many companies adopt ________ rather than cutting prices to match competitors. A) pricing power B) value-added pricing strategies C) fixed costs D) price elasticity E) image pricing
B
121) With an understanding of price elasticity, sellers should know that the less elastic the demand for their product is, the more advantageous it is for them to ________. A) drop the price B) raise the price C) leave the price where it is D) discontinue the item E) bundle the product with another product
B
129) When Whallans Gift Card Shop offers a price reduction to customers who buy Christmas cards the week after Christmas, Whallans is giving a(n) ________ discount. A) functional B) seasonal C) annual D) allowance E) credit
B
60) Consumers usually perceive higher-priced products as ________. A) not within reach of most people B) having a higher quality C) having high profit margins D) popular brands E) being in the introductory stage of the product life cycle
B
62) ________ prices are the prices that a buyer carries in his or her mind and refers to when looking at a given product. A) Psychological B) Reference C) Promotional D) Geographical E) Dynamic
B
67) The Internet offers ________, where the price can easily be adjusted to meet changes in demand. A) captive pricing B) dynamic pricing C) basing-point pricing D) price bundling E) cost-plus pricing
B
68) Price escalation in international markets is most likely to result from the higher costs of selling in another country and differences in market conditions or ________. A) cultural preferences B) selling strategies C) regional tastes D) customer perceptions E) language barriers
B
69) Which of the following is NOT a reason for a company to initiate a price cut? A) to boost sales B) to obtain prestige C) to dominate the market D) to relieve excess capacity E) to influence falling demand
B
74) Federal legislation on price-fixing requires that sellers set their prices ________. A) based on their fixed and variable costs B) without communication with competitors C) to achieve a specified profit margin D) with the intention of putting competitors out of business E) consistently throughout a region
B
1) ________ is the amount of money charged for a product or service. A) Experience curve B) Demand curve C) Price D) Wage E) Salary
C
119) Swatch surveyed the market and identified an unserved segment of watch buyers. Using these results, they created a watch at a price consumers were willing to pay. 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
C
128) Mach 3 razor blades must be used in the Mach 3 razor. Which type of pricing is most likely used? A) product line pricing B) optional-product pricing C) captive-product pricing D) by-product pricing E) allowance pricing
C
13) ________ pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for the company's efforts and risks. A) Value-based B) Fixed cost C) Cost-based D) Variable E) Skimming
C
134) Big Mike's Health Food Store sells nutritional energy-producing foods. The price of the products sold varies according to individual customer accounts and situations. For example, long-time customers receive discounts. This strategy is an example of ________. A) promotional pricing B) cost-plus pricing C) dynamic pricing D) value pricing E) penetration pricing
C
135) Savings for You, a discount retail chain, is highly competitive. When entering a new market, Savings for You often cuts prices so deeply that it sells below costs, effectively pushing smaller companies with less purchasing power out of the market. Savings for You is most at risk of being accused of ________. A) market skimming B) price-fixing C) predatory pricing D) deceptive pricing E) price confusion
C
19) 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 ________ pricing. A) value-based B) fixed cost C) cost-plus D) variable E) skimming
C
22) Which of the following is a cost-based approach to pricing? A) value-based pricing B) going-rate pricing C) break-even pricing D) good-value pricing E) A and C
C
37) If demand changes greatly with a small change in price, we say the demand is ________. A) inelastic B) variable C) elastic D) value-based E) fixed
C
4) Product costs set a(n) ________ to a product's price. A) demand curve B) experience curve C) floor D) ceiling E) break-even cost
C
42) Companies facing the challenge of setting prices for the first time can choose between two broad strategies: market-penetration pricing and ________. A) market-level pricing B) market-competitive pricing C) market-skimming pricing D) market-price lining E) market-price filling
C
58) The New Age Gallery has different admission prices for students, adults, and seniors. All three groups are entitled to the same services. This form of pricing is called ________. A) time-based pricing B) location pricing C) customer-segment pricing D) revenue management pricing E) generational pricing
C
61) Consumers use price less to judge the quality of a product when they ________. A) lack information B) lack skills to use the product C) have experience with the product D) are shopping for a specialty item E) cannot physically examine the product
C
65) Under which type of geographic pricing strategy does each customer pay the exact freight for the product from the factory to its destination? A) basing-point pricing B) freight-absorption pricing C) FOB-origin pricing D) dynamic pricing E) zone pricing
C
66) Which of the following is the opposite of FOB-origin pricing? A) basing-point pricing B) freight-absorption pricing C) uniform-delivered pricing D) freight-absorption pricing E) zone pricing
C
7) Value-based pricing is the reverse process of ________ pricing. A) variable cost B) cost-plus C) cost-based D) good-value E) value-added
C
71) When a competitor cuts its price, a company might decide to ________ if it believes it will not lose much market share or would lose too much profit by cutting its own price. A) reduce its production costs B) reduce its marketing costs C) maintain its current price and profit margin D) increase its marketing budget to raise the perceived value of its product E) increase its production costs to improve the quality of the product
C
75) Price discrimination is legal under which of the following conditions? A) when a manufacturer and reseller have agreed upon a specified retail price for a product B) when a manufacturer sells to retailers in different markets C) if a seller can prove its costs per unit are different when selling to different retailers D) if a seller advertises prices that are not actually available to consumers E) if a seller has not communicated with competitors before announcing prices
C
9) Measuring ________ can be difficult. A company might conduct surveys or experiments to test this in the different products they offer. A) target returns B) fixed costs C) perceived value D) break-even pricing E) variable costs
C
130) A manufacturer offers 3/10, net 30, terms to a wholesaler for a recent purchase. Under these terms, the wholesaler may deduct ________ percent if the bill is paid within ________ days. A) 10; 30 B) 10; 3 C) 3; 30 D) 3; 10 E) 7; 10
D
131) Vac 'N' Sew will give customers $100 for a used vacuum cleaner, regardless of condition, when they purchase a new vacuum or sewing machine. This essentially reduces the price by $100. What is this type of discount called? A) functional discount B) captive-product discount C) seasonal discount D) trade-in allowance E) by-product allowance
D
133) If Northwest Awnings charges the same price for delivery of their product to any customer that is located within the Great Lakes states, the company is using ________. A) psychological pricing B) promotional pricing C) reference pricing D) zone pricing E) uniform-delivered pricing
D
14) Fixed costs ________ as the number of units produced increases. A) decrease B) increase C) divide in half D) remain the same E) increase at a diminishing rate
D
18) ________ are the sum of the ________ and ________ for any given level of production. A) Fixed costs; variable; total costs B) Fixed costs; total; variable costs C) Variable costs; fixed; total costs D) Total costs; fixed; variable costs E) Break-even costs; fixed; total costs
D
21) Which of the following presents the strongest reason that markup pricing generally does NOT make sense? A) Sellers earn a fair return on their investment. B) By tying the price to cost, sellers simplify pricing. C) When all firms in the industry use this pricing method, prices tend to be similar. D) This method ignores demand. E) With a standard markup, consumers know when they are being overcharged.
D
27) Of the following, a company would be LEAST likely to set prices low to ________. A) prevent competition from entering the market B) stabilize the market C) create excitement for a product D) prepare for an easy exit from a market E) match a competitor
D
43) Which of the following would NOT support a market-skimming policy for a new product? A) The product's quality and image must support its higher price. B) Enough buyers must want the products at that price. C) Competitors are not able to undercut the high price. D) Competitors can enter the market easily. E) The cost of producing a smaller volume is not so high that it negates the advantage of charging more per unit.
D
56) When General Motors provides payments or price reductions to its new car dealers as rewards for participating in advertising and sales support programs, it is granting a(n) ________. A) trade discount B) functional discount C) allowance D) promotional allowance E) trade credit
D
59) When a firm varies its price by the season, month, day, or even hour, it is using ________ pricing. A) revenue management B) penetration C) skimming D) time-based E) value-added
D
63) What type of pricing is being used when a company temporarily prices its product below the list price or even below cost to create buying excitement and urgency? A) segmented pricing B) psychological pricing C) referent pricing D) promotional pricing E) dynamic pricing
D
72) Which of the following is NOT on an effective action that a company can take to combat a competitor's price cut on a product? A) reduce price B) raise perceived value C) improve quality and increase price D) bundle products together E) launch a low-price "fighting brand"
D
8) With ________ pricing, price is set to match consumers' perceptions of product value. A) variable cost B) cost-plus C) cost-based D) value-based E) every day low
D
24) Which of the following statements about a break-even chart is true? A) It is used to determine how the customer-perceived value changes with value-added pricing. B) It is a tool used to calculate fixed costs. C) It shows the level of earnings a company has during an accounting period. D) It is a tool marketers use to examine the relationship between supply and demand. E) It uses variable costs, the unit price, and fixed costs.
E
28) 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; use penetrating pricing E) determine a selling price; target costs to ensure that the price is met
E
30) Price setting is usually determined by ________ in large companies. A) top management B) divisional managers C) product-line managers D) purchasing departments E) both B and C
E
