chapter 19
If Seagram's marketers found that the firm's Crown Royal bourbon was a prestige product and raised its price, which of the following would most likely happen?
Above some price level, the quantity demanded would begin to decrease.
Provisions of the Robinson-Patman Act, as well as those of the ___________, limit the use of price differentials
Clayton Act
When marketers at Consolidated Mustard Company tried to determine demand for their product, they found that at 50 cents, consumers wanted 2,000 jars; at $1.00, they wanted 6,000 jars; and at $1.50, they wanted 4,000 jars. What can Consolidated conclude?
Consolidated mustard is a prestige good.
Which of the following is not a discount provided to business customers?
Differentiated
Rob Johnson orders 16 dozen fishing lures from Strike Right for $375. When he gets the invoice, he is furious that $25 in freight charges has been tacked onto his bill because he thought the price included freight costs. Rob should have been certain that the order terms were
F.O.B. destination.
If BASF were to price its product in barrels from the factory, before it is loaded on the carrier, this would be an example of _________ pricing.
F.O.B. factory
If a retailer orders a quantity of merchandise to be delivered to his store in Phoenix and is quoted a price that does not include shipping charges, the retailer is paying a(n) ___________ price.
F.O.B. factory
Which of the following products is most likely to have an inverted C-shaped demand curve?
Giorgio perfume
What assumption does breakeven analysis make that limits its overall usefulness?
It relies on demand for a product being inelastic.
What do all of the following have in common: tuition, fee, premium, retainer, dues?
They are different terms for the concept of price.
What type of discount is given to a business purchaser for performing activities such as transporting, storing, and selling?
Trade
___________ consumers are concerned about both the price and the quality aspects of a product.
Value-conscious
Which of the following statements about price elasticity is false?
When price is raised on a product that has an inelastic demand, then total revenue will decrease.
The fact that a gas station in Texas pays less for fuel than a gas station in Maine from a producer in Louisiana suggests that refineries are using which of the following pricing methods?
Zone pricing
One advantage of nonprice competition is that
a firm can build customer loyalty.
In conducting an assessment of her accounting firm, Pauline Santana discovers the following annual results: average charge per customer = $250; rent = $12,000; total billings = $150,000; employee compensation and benefits = $60,000; and other costs = $110,000. Given these results, Mary's profits would equal
a loss of $32,000.
To gain market share, when Hyundai first entered the U.S. car market it did so with a comparatively low price strategy. One of the negative side effects of making this pricing decision is
a negative impact on consumers' perceptions of quality.
A concession in price in business markets to achieve a desired goal is called a(n)
allowan
Lucy buys a new dress at T.J. Maxx that has a price tag with "Compare at $50.00. Our Price $29.99." This is an example of the use of
an external reference price.
Below the breakeven point, a firm is operating
at a loss.
If Roberts Electronics finds that the average total cost of its radar detectors and the marginal cost of its radar detectors are both $85, then
average total cost is at its lowest level.
The oldest form of exchange—trading of products—is known as
barter
The Highland Racquet Club found that with annual fixed costs of $60,000, its breakeven point is 2,000 members when the membership charge is $60 per person per year. What is the variable cost per person for Highland?
c) $30
ACE Electronics introduces a new voice-activated personal computer that no longer requires a keyboard. ACE charges the high price of $11,000 per unit, thus generating large profits because it has a 20 percent market share. ACE's major problem in the future will most likely be
competition.
Marketers generally view _____ as the minimum price a product can be sold for.
costs
A deduction from list price for purchasing large quantities aggregated over a stated period of time is a
cumulative quantity discount.
Both the Federal Trade Commission Act and the Wheeler-Lea Act prohibit
deceptive pricing.
A graph of the quantity of products marketers expect to sell at various prices if other factors remain constant is a
demand curve.
For most firms in the United States, demand curves are
downward sloping.
If Carnival Cruise Lines increased the price of its seven-day cruise package by 10 percent and, as a result, experienced a 20 percent decline in customer bookings, Carnival's demand would be
elastic.
When a customer is considering the purchase of a product in a less-familiar product category, that individual is likely to rely more heavily on
external reference prices.
Costs that do not vary with changes in the number of units produced and sold are called ____ costs.
fixed
A marketer sometimes uses temporary price reductions to
gain market share.
Reductions for transportation and other costs related to the physical distance between buyer and seller are known as
geographic pricing.
If Concession Supply increased its price by 10 percent and experienced only a 2 percent decrease in the demand for hotdogs, the demand would be
inelastic.
If Pacific Power and Light increased its rates 10 percent and experienced only a 2 percent reduction in the demand for power, the demand would be
inelastic.
A price developed in the consumer's mind through experience with the product is called a(n
internal reference price.
What a price means or what it communicates to customers is called
interpretation.
For most products, a(n) ____ relationship exists between the price of a particular product and the quantity demanded.
inverse
If the terms of a business exchange are 2/10 net 30, this means that the transaction
involves a cash discount if paid within ten days.
A product under nonprice competition would most likely not succeed in the market if
it is easy to duplicate.
To maintain market share and revenue in an increasingly price-sensitive market, companies have focused on quality, used labor-saving technologies, and used efficient manufacturing processes. These tactics have provided gains in productivity that have translated into ___________ for the consumer.
lower costs for the company and lower prices
Roberts Electronics calculates that if it produces 15 radar detectors, its costs are $1,500, and if it produces 16 radar detectors, its costs are $1,590. In this instance, $90 is the firm's ___________ cost.
marginal
If Colgate-Palmolive wants to maximize profit on its toothpaste, it should operate at the point where
marginal revenue equals marginal cost.
Sellers that emphasize distinctive product features to encourage brand preferences among customers are practicing
nonprice competition.
The perception of price depends on a
product's actual price and consumers' expectations regarding price.
If Ralph Lauren offers to reduce the price of its women's blazers when retailers buy more than 100 pieces, the designer is offering a ____________ discount.
quantity
Premium-priced products are usually marketed through
selective or exclusive distribution.
When marginal cost is equal to marginal revenue, the firm should
stop producing additional units to maximize profits.
Markum Industries determines that for its air compressors the following results are achieved at a price of $250: total costs = $250,000; variable costs per unit = $100; fixed costs = $175,000. Given these figures, Markum would break even at ___________ units.
1,167
If the product price is $100, average variable cost $40 per unit, and the total fixed costs are $120,000, what is the breakeven point
2,000 units
If Concession Supply wanted to make a profit of $800 on each case, it would need to sell ___________ cases.
200
The Highland Racquet Club found that with annual fixed costs of $60,000, its breakeven point is 2,000 members when the membership charge is $60 per person per year. What is the variable cost per person for Highland?
30
Which of the following statements about nonprice competition is false?
Companies that use nonprice competition do not need to keep track of their competitor's prices.
Which of the following is not a method used to determine transfer prices?
Discounted standard cost
If a firm currently produces 2,500 products per month and decides to produce 2,501, it will incur
If a firm currently produces 2,500 products per month and decides to produce 2,501, it will incur
Which of the following is most likely to have an inelastic demand curve?
Nonelective surgery
Which of the following is not a major factor for firms making price decisions?
Previous sales
Which of the following is the most flexible variable in the marketing mix?
Price
Which of the following is most likely to be a fixed cost?
Rent
Which of the following products is most likely to involve personal selling?
Riding lawn mowers
Which of the following prohibits price discrimination that lessens competition among wholesalers and retailers?
Robinson-Patman Act
The ___________ prohibits price fixing among firms in an industry.
Sherman Antitrust Act
Which factor is least likely to affect pricing decisions?
Shifting stock values
Which of the following acts does not directly affect pricing decisions?
Simpson-Marshall Act
At what point does a firm maximize profit?
The point at which marginal cost equals marginal revenue
Michelin notices that when the number of tires it sells increases from 1,000,000 to 1,000,001, total revenue rises $35. The $35 represents the firm's
marginal revenue.
Suppose that the watchband department of Timex sells completed watchbands to the finished watch department. The finished watch department is charged the price it would have to pay an outside watchband manufacturer less a discount to reflect low sales and transportation costs. This method of pricing is called _______ pricing.
market-based cost
Marketers have no flexibility in setting prices under conditions of
perfect competition.
The types of prices that appear least often in ads are ___________ prices.
premium
A customer who is ___________ is likely to say, "People notice when you buy the most expensive brand of a product."
prestige-sensitive
Dividing the percentage change in quantity demanded by the percentage change in price gives the
price elasticity of demand.
To determine the breakeven point in units, divide the fixed costs by
price minus variable costs.
A danger associated with engaging in price competition is that competitors can also change prices quickly and aggressively, which can result in a(n) _____ that will be harmful to both companies.
price war
Advertisements for Suave shampoos emphasize that other shampoos may cost more but don't work any better than Suave. In this example, Suave is competing on the basis of
price.
The tuition and fees each student paid for this semester of college are both terms for
price.
Suppose Tommy Hilfiger is introducing a new line of men's ties. The designer believes that the target market for these ties comprises men who are very status-conscious. In keeping with this assessment, department stores selling the ties should
use price symbolically.
Costs that vary directly with changes in the number of units produced or sold are called
variable costs.
Marginal analysis involves examining
what happens to a firm's costs and revenues when production is changed by one unit.
The amount of profit a channel member expects depends on
what the intermediary could earn if it were handling a competing product instead.
What equation shows organizations the relationship between price and profit?
(Price × Quantity Sold) - Total Costs = Profits
The type of prices most likely to appear in advertising is
bargain.
Buyers who focus on purchasing products that signify prominence and status are
prestige-sensitive buyers.
Temporary price reductions through sales, rebates, and special discounts are often used to
raise cash quickly.
If a product has an inelastic demand and the manufacturer raises its price,
total revenue will increase.
The Panama Jack Company utilizes a special strategy to sell its ECO-shirt line. Its basic promotional tool is the discount. These discounts offered to middlemen for performing certain channel activities are referred to as ____________ discounts.
trade
Justin Caprese phones Ben Kirkland of Southside Furniture to inform him that if he will increase his recent order of 15 mattress sets to 20, he will receive a 14 percent price reduction. This offer is due to a recent overstock condition at the factory and will not be available in the future. The discount offered here is
noncumulative.
The point at which the costs of producing a product equal the revenue earned from selling the product is
the breakeven point.
Price is a key element in the marketing mix because it relates directly to
the generation of total revenue.
At the breakeven point,
the money a company brings in from selling products equals the amount spent producing the products.
Price is
the value that is exchanged for products in a marketing transaction.
Generally, customers are most likely to rely on the price-quality association when
they cannot judge the quality of the product for themselves.
Monopolies usually keep their prices at a level that generate a reasonable, but not excessive, return primarily because
they want to avoid government regulations on their pricing.
In the long run, the J. F. Smucker Company must view ___________ as the absolute lowest price for its Jif brand peanut butter.
total costs
Laura Spangler, of North Central Novelties, reduces the price of games sold to Robertson's Entertainment by 10 percent to allow for expenses associated with Robertson's promoting the games to consumers. This is an example of a ___________ discount.
trade
When Cadillac buys headlights from Delco (both of which are divisions of General Motors), ___________ pricing occurs.
transfer
A company trying to position itself as value oriented should not
use premium pricing for its products.
If Wilson Sporting Goods faces a standard demand curve that exists for most products, as it raises the price of its tennis rackets, the
quantity demanded goes down.
The degree to which the price of a product enhances a customer's satisfaction with the purchase experience and with the product after the purchase is part of their
response
If a company increased its price from $100 to $120 and the quantity demanded fell by 40 percent, the price elasticity of demand for this product is
-2.
What does the demand curve for a prestige product look like?
It forms a curve where the greatest quantity sold comes at a medium price and the quantities fall as the price increases or decreases.
Suppose that the frozen foods division of Swanson purchases food trays and boxes from the packaging division. The form of pricing used to charge the frozen foods division is called
Suppose that the frozen foods division of Swanson purchases food trays and boxes from the packaging division. The form of pricing used to charge the frozen foods division is called
Suppose managers at Caterpillar have determined the costs associated with producing hay balers are equal to the price that they charge for the hay balers. This indicates that Caterpillar is producing at the ___________ point.
breakeven
French Quarter Inns drops the price of a suite from $225 to $195 per night and experiences a reduction in the quantity of rooms demanded of an average of five per night. This is an indication that suites at this hotel are apparently an example of a(n) ___________ product.
prestige
For most consumers, there is an assumed relationship between
price and quality.
Safe Auto advertises its low-cost automobile insurance as "minimum coverage for minimum budgets." Safe Auto is engaging in
price competition.
When marketers emphasize price as an issue and match or beat the prices of other companies, they are using
price competition.
If a company provides price differentials that harm competition by giving one or more buyers a competitive advantage, it is committing
price discrimination.
A measure of sensitivity of demand in relation to changes in price is
price elasticity of demand.
A certain location of O'Charley's Restaurant has annual fixed costs of $200,000. If an average tab at the restaurant is $60 and the variable costs per tab is $20, how many groups of customers must O'Charley's serve per year in order to break even?
5,000
Tim O'Brien gets the invoice for a load of gravel he purchased last week. The price of the gravel was $55, and the terms are 2/10, n/45. If Tim pays the invoice in five weeks, he will owe5
55.00