MKT CHAPTER 19 PRICING CONCEPTS
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?
$1,500
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?
$10
Your Memory Lane creates custom art prints that use graphs and icons in a street scene to commemorate special occasions. Suppose 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 an average variable costs per print of $250. What is his fixed cost contribution per print?
$100
At Walmart, 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. The retailer's revenue is:
$128.45
Cowboy Malone's Electric City pays a wholesaler $692 for a television and sells it to a customer for $1,500. The markup on the television is:
$800
Pet's Eye View Digital Camera is a small, durable digital camera that pet owners can clip to their pets' collars. A programmable timer takes pictures every few minutes, recording a photographic diary of the pet's day. The camera sells for $25. The average variable cost for each camera is $10 and the total annual fixed costs for plant operation are $45,000. What is the break-even point in units?
3,000
Your Memory Lane produce 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 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?
3,000 prints
An office supply store can buy a desk for $300. If the store owner sells the desk for $450, what is the markup based on the selling price?
33 percent
An office supply store can buy a desk for $300. If the store owner sells the desk for $450, what is the markup based on cost?
50 percent
What happens when demand is elastic?
As price goes up, revenue goes down.
Regency, Inc. makes disposable cap and gown sets for graduations. Each cap and gown set sells for $15. The average variable cost for manufacturing 10 cap and gown sets is $100. Total fixed costs for the year equal $65,000. Calculate the break-even point in units.
Break-even = $65,000/[15 - (100/10)] = 13,000
_____ determine what sales volume must be reached for a product before the company's total costs equal total revenue and no profits are earned.
Break-even analyses
Which of the following statements about the Internet is true?
Business-to-business auctions on the Internet are likely to be more important than consumer auctions in the future.
_____ costs do not change as output is increased or decreased
Fixed
_____ cost is the change in total costs associated with a one-unit change in output.
Flex
Which of the following statements describes a limitation associated with break-even analysis?
It is sometimes difficult to ascertain whether a cost is fixed or variable
_____ is the practice of marking up prices by 100 percent (or doubling the cost to set the selling price).
Keystoning
Which of the following would imply demand would be elastic?
Many substitute products
_____ is the extra revenue associated with selling an additional unit of output.
Marginal revenue
_____ is a company's product sales as a percentage of total sales for that industry.
Market share
Central Bark is a dog resort where pets are pampered. Which of the following is the BEST example of one of its fixed costs?
Payment on the building used by Central Bark
Which of the following is most likely to be a variable cost for an Internet retailer that sells spices, herbs, and seasonings to consumers?
Postage for shipping spices and herbs
All of the following statements about price are true EXCEPT:
Price means the same thing to the consumer and the seller.
_____ is equal to net profit after taxes divided by total assets
Return on investment
_____ pay for every activity of the company.
Revenues
Britney is fifteen years old and wants to open her own business selling cupcakes to local coffee shops and restaurants. 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:
Sales-oriented pricing objectives are based on either market share or dollar or unit sales.
Which of the following statements describes an advantage of status quo pricing?
Status quo pricing requires little planning.
_____ is the quantity of a product that will be offered to the market at various prices for a specified period.
Supply
Why are marketing managers finding it more difficult to set prices in today's environment?
The high rate of new-product introductions has led to careful reevaluation by consumers.
What does the lack of a price-matching guarantee tend to signal to the target market?
The retailer provides a high level of service
_____ occurs when an increase in sales exactly offsets a decrease in price so that total revenue remains exactly the same.
Unitary elasticity
Which of the following statements about pricing strategies throughout the product life cycle is FALSE?
With inelastic demand, price will be set low in the introduction stage
Which of the following statements about yield management systems (YMS) is true?
YMS are mathematically complex systems to make use of underutilized capacity and reduce the cost of perishability.
_____ use complex mathematical software to profitably fill unused capacity.
Yield management systems
The dimensions of quality that are important to consumers include:
all of the choices
Price wars often break out:
as a product enters the growth stage
Total variable costs divided by quantity of output equals:
average variable cost
When goods and services are exchanged, the trade is called:
barter
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:
buy the most expensive pre-made quiche (perhaps paying too much), guessing that the price is related to quality
The typical break-even model assumes a given fixed cost and a:
constant average variable cost
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?
consumer demand
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:
continue manufacturing
The price of the good or service is a key decision for a marketer because it most significantly and directly affects the product's:
demand
The quantity of a product that will be sold at various prices for a specified period is called:
demand
The _____ is the quantity of a product that will be sold in the market at various prices for a specified time period, and _____ is the quantity of a product that will be offered to the market by suppliers at various prices for a specified period.
demand; supply
Most demand curves slope:
downward and to the right
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 their product higher, given the demand, they don't. Instead, they set price so that they earn a reasonable level of profits. This company seems to base its pricing policy on:
earning satisfactory profits
The greater the number of different uses for a product, the more _____ demand tends to be.
elastic
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:
elastic
While the sales of the Apple iPhone have been great from the beginning, when Apple released its iPhone 3G and cut the price of the iPhone for $399 to $199, sales exploded. One million iPhones sold the first weekend. Demand for the iPhone appears to be:
elastic
When consumers are sensitive to price changes, _____ occurs.
elastic demand
Consumers' responsiveness or sensitivity to changes in prices is known as:
elasticity of demand
Revenue
equals price of goods times quantity sold
When the price of a product is set at a level where demand and supply are the same, _____ has been achieved.
equilibrium
Patrick owns Liberty Tax and Bookkeeping Services. The monthly mortgage payment Patrick makes on his small office building and the annual cost of his business license are all examples of _____ costs.
fixed
If price _____ and revenue _____, demand is elastic.
goes down; goes up
The difference between the retailer's cost and the selling price is the:
gross margin
When Jerry took delivery of his brand new (and very expensive) Jaguar automobile, he was filled with pleasure and excitement. This is an example of the _____ effect associated with the price-quality relationship.
hedonistic
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 email 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:
high initial price, falling slightly when entering the growth stage
When price decreases and total revenue falls, demand is:
inelastic
If a product has high pricing power this would indicate a situation of
inelastic demand
When the NES Group lowered the price of its professional-grade meat slicers from $2,300 to $1,600, demand doubled from 4 units sold per month to 8 units per month. However, total revenue dropped. This is an example of:
inelastic demand
All of the following factors directly affect the elasticity of demand EXCEPT
inputs needed to manufacture the product
Many consumers, especially when faced with an uncertain purchase decision, think that a high price:
is a signal of quality
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 that the designer uses:
keystoning
Profit maximization occurs when:
marginal revenue equals marginal cost
At a price of $1,192,057, the Bugatti Veyron may be the most expensive street legal car currently on the market today. Obviously, Bugatti is NOT using a _____ pricing objective in setting the price for this car.
market share or sales maximization
The most popular method used by wholesalers and retailers in establishing a sales price is _____ pricing
markup
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.
markup
The point at which marginal cost and marginal revenue are equal always results in:
maximization of profits
Demand for which of the following products or services is most likely inelastic?
milk
Pricing power is all about:
perceived value to the customer
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.
prestige
David likes New Balance running shoes. However, when he stopped by the Foot Locker to buy a new pair of running shoes he notice 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:
prestige pricing
Marketing managers who attempt to raise the quality image of their product by selling it at high prices are following a(n) _____ strategy
prestige pricing
At Walmart, 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:
price
Peggy's Twist Shack sells soft-serve ice cream. Peggy graphed the demand per week for vanilla ice cream cones. The graph indicates a demand schedule that slopes downward and to the right. This graph indicates that the quantity of vanilla ice cream cones demanded increases as:
price decreases
At a price of $6,000, only 191 of the Moulton 60 model bicycle are being made. If Moulton sells each one of the bicycles at that price, then a state of _____ has been achieved.
price equilibrium
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):
price equilibrium
Fixed cost contribution equals:
price minus the average variable cost
One way a firm can gain pricing power is to:
produce something radically new and better than the competition
Money that is left over after paying for company activities is called:
profit
An organization is using _____ when it sets its prices so that total revenue is as large as possible relative to total costs.
profit maximization
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 Inc. entered the market with a _____ approach to pricing the iPhone
profit maximization
For convenience, pricing objectives can be divided into three categories. They are:
profit oriented, sales oriented, and status quo
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% 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
profit-oriented
Yield management systems are used to:
profitably fill unused capacity
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):
promotion strategy
Shopping bots:
provide a means for comparison shopping
Manufacturers can do all of the following to regain some control over the price their products are sold for at the retail level EXCEPT:
require resellers to maintain prices in line with competitors' prices
As a short-term pricing objective, _____ can be effectively used on a temporary basis to sell off excessive inventory
sales maximization
At the end of the summer, the Bloomin' Garden Center 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?
sales maximization
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 does 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:
sales maximization
A company using market share pricing has a _____ pricing objective.
sales-oriented
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:
selling against the brand
If a company's pricing objective is to meet the competition or to maintain existing prices, it is using _____ pricing.
status quo
When the local Shell station raises or lowers its prices on its gasoline, the Marathon station across the street makes the same changes in its pricing. This is an example of _____ pricing.
status quo
Price is best described as
that which is given up in exchange to acquire a good or service
Although many factors can influence price, the primary determinants are:
the demand for the good and the cost to the seller
Keystoning is:
the practice of marking up prices by 100 percent
As a product enters the growth stage, prices generally begin to stabilize. One reason for this is that:
the product has begun to appeal to a broader market
A cost that changes with the level of output is called a(n) _____ cost.
variable
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.
variable
The two types of costs a marketer needs to consider when setting prices are:
variable and fixed
Allstate has more than 1,500 price-levels that are determined by a complex algorithms that analyzes 16 credit report variables, including late payments and card balances. Allstate is using a _____ to set prices.
yield management system
