Building The Price Foundation Test Bank Answers Chapter.13

Chapter 13

Building the Price Foundation

Multiple Choice Questions

North America's No. 1 smart TV company is

Samsung.

B.	Panasonic.

LG.

Sony.

Vizio.

Vizio, Inc., is the largest contender in the North American __________ market.

A.	designer eyewear

B.	virtual media

smart TV

D.	3-D video game

E.	exotic travel

Vizio's HDTVs are sold through all of the following types of retailers except

A.	Amazon.com.

B.	mass merchandisers, such as Target.

C.	its own company stores.

D.	wholesale club stores such as Sam's Club.

E.	electronics stores such as Best Buy.

In order to deliver a product that the average consumer can afford, Vizio

A.	handles product design and marketing in the United States and relies on contract manufacturers in other countries to build the product.

B.	uses mass customization in other countries and then ships the HDTVs to the United States.

C.	purchased a small company in China to distribute its products under the Vizio name.

D.	purchased a small company in Japan to distribute its products under the Vizio name.

E.	relies solely on recycled materials to build high-quality, no-frills products.

The money or other considerations (including other products and services) exchanged for the ownership or use of a product or service is referred to as

a fee.

value.

C.	remuneration.

a price.

E.	an exchange rate.

Price refers to

A.	the value assigned to the exchange of products and services for other products and services.

B.	the value judgment made by both the buyer and seller regarding an item's worth.

C.	the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service.

D.	the value assessed for the benefits of using a product or service.

E.	the highest monetary value a customer is willing to pay for a product or service.

From a marketing viewpoint, __________ is the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service.

value

price

barter

currency

a tariff

All of the following are synonyms for price except

A.	a premium.

barter.

tuition.

D.	a commission.

profit.

Which of the following is an example of a price?

tuition

B.	operating costs

liquidity

value

E.	stockholders' equity

10.

Attorneys' fees, entrance fees, train fares, and organization dues are all examples of

premiums.

barter.

profit.

price.

outlays.

11.

All of the following statements about price are true except

A.	small changes in price can have big effects on both the number of units sold and company profit.

B.	the price for a product or service must earn a profit for the company.

C.	the price for most products and services is always the same.

D.	the price must be "right"—in the sense that customers must be willing to pay it.

E.	the price must generate enough sales dollars to pay for the cost of developing, producing, and marketing the product.

12.

Susan O'Rourke hired an attorney to represent her in a court case involving an auto accident. The attorney charged O'Rourke a $2,000 retainer fee for his services. Terry Thomas needed a haircut; the local stylist charged him $12 for her services. Aaron Mathison mowed his neighbor's lawn; in exchange, the neighbor rototilled Mathison's garden. The attorney fees paid by O'Rourke, the $12 charged by the hair stylist, and the exchange of lawn mowing for garden tilling are all examples of

premiums.

barter.

C.	the profit motive.

price.

outlays.

13.

The practice of exchanging products and services for other products and services rather than for money is referred to as

barter.

B.	reciprocal pricing.

C.	virtual pricing.

D.	balance of payments.

E.	value-pricing.

14.

Barter refers to

A.	a reciprocity agreement stipulating that if company "A" purchases services from company "B," then company "B" must purchase similar services from company "A."

B.	a tying agreement stipulating that if company "A" purchases a product from company "B," it must also purchase one of its services.

C.	the practice of exchanging products and services for other products and services rather than for money.

D.	the practice of exchanging services for products of equal or greater value.

E.	the practice of exchanging products and services for money.

15.

Barter is the practice of exchanging products and services for other products and services rather than for

value.

ideas.

promises.

tariffs.

money.

16.

The use of "special fees" and "surcharges" is driven by consumers' zeal for __________ combined with the ease of making price comparisons on the Internet.

A.	high prices

B.	low prices

quality

value

E.	warranties

17.

The use of "special fees" and "surcharges" is driven by consumers' zeal for low prices and

A.	the ease of making price comparisons on the Internet.

B.	value, the idea of getting more for their money.

C.	the need for extra accessories.

D.	avoiding state sales taxes from Internet purchases.

E.	a dislike of price haggling or negotiating.

18.

According to the price equation, final price equals list price minus __________ plus extra fees.

profits

B.	commissions

trade-ins

taxes

E.	incentives and allowances

19.

According to the price equation, final price equals __________ minus incentives and allowances plus extra fees.

salaries

B.	list price

profits

trade-ins

taxes

20.

According to the price equation, a product's or service's final price equals its list price minus incentives and allowances plus

profits.

B.	commissions.

C.	trade-ins.

D.	extra fees.

taxes.

21.

A company that manages apartments decides to buy 15 new dishwashers at a list price of $550 each as replacements for old dishwashers in a small apartment complex it owns. Because the company is buying more than 10 dishwashers, it is eligible for a $150-per-unit quantity discount. Financing charges total $20 per unit. The company gets $10 per dishwasher for the 15 dishwashers traded in. What is the final price the company will pay for each dishwasher (not the total cost)?

$390

$400

$410

$430

$730

22.

Tara is enrolled for spring semester at college. The tuition is $6,000, but she has a scholarship for $1,000 as well as a work-study grant of $1,500. The health fees and student activity fees are $150 for the semester. What is the final price that Tara will pay for the spring semester?

$2,500

$2,650

$3,150

$3,650

$6,150

23.

Suppose you want to get "plugged in" and buy an all-electric Tesla Model S, the world's leading all-electric, zero-emission car that has a 265-mile range and can be recharged in three hours. The Tesla Model S Performance model has a list price of $87,500. However, you want several options (Performance Plus Package, red multi-coat armor paint, Tech Package, Sound Studio Package, home charging station, performance wheels, and others) that will cost $17,500. An extended warranty will add an additional $5,000. However, if you put $50,000 down now and finance the balance over the next year, you will receive a dealer rebate of $5,000 off the list price. The dealer will give you a $7,000 trade-in allowance for your 2008 Honda Civic DX four-door sedan. In addition, you will have to pay a state sales tax of $10,000, an auto registration fee of $1,000 to the state, and a $1,000 destination charge to ship and prep the car. But because the Tesla Model S is an alternative energy vehicle, you qualify for a $2,500 state rebate and a $7,500 federal tax credit! Finally, your total finance charge is $7,000. Applying the price equation, what is your final price for the Tesla Model S?

$57,000

$68,000

$87,500

$107,000

$151,000

24.

The ratio of perceived benefits to price is referred to as

A.	the price-quality relationship.

B.	customer-value pricing.

C.	value-added pricing.

D.	value analysis.

value.

25.

The ratio of __________ to price is referred to as value.

A.	prestige value

B.	perceived benefits

costs

D.	perceived quality

profits

26.

The ratio of perceived benefits to __________ is referred to as value.

price

prestige

C.	perceived quality

profits

E.	perceived costs

27.

To increase value the most, marketers should

A.	decrease benefits.

B.	decrease benefits and increase price.

C.	decrease price and increase benefits.

D.	decrease price and decrease benefits.

E.	do nothing and let the perceived value of the item increase as it matures in its life cycle.

28.

To increase value, marketers may __________, decrease price, or do both.

A.	decrease benefits

B.	increase benefits

C.	increase price

D.	increase advertising

E.	do nothing and let the perceived value of the item increase as it matures in the life cycle

29.

Which of the following statements is most accurate?

A.	For some products, price influences the perception of overall quality, and ultimately value, to consumers.

B.	A consumer's view of a product's value is always tied to quality.

C.	A consumer's view of value is a function of his or her education and income.

D.	Price plays only a small part in a consumer's perceived value of a product or service.

E.	Price plays a large role in assessing value but a very minor role in assessing quality.

30.

Most consumers realize that the quality of diamonds varies, and most believe the higher the price of a diamond, the higher its quality. This is an example of price influencing the perception of overall quality and therefore __________ to consumers.

A.	acceptable cost

B.	perceptual investment

C.	barter potential

D.	return on investment

value

31.

When Pizza Hut announced it was going to add 25 percent more toppings to its Meat Lover's line of pizzas without increasing prices, what consumer motivation was it appealing to?

cost

B.	appearance

value

price

quality

32.

Value-pricing refers to

A.	the ratio of perceived benefits to price.

B.	the money or other considerations exchanged for the ownership or use of a product or service.

C.	the practice of simultaneously increasing product and service benefits while maintaining or decreasing price.

D.	the ratio of price to perceived benefits.

E.	list price minus incentives and allowances plus extra fees.

33.

The practice of simultaneously increasing product and service benefits while maintaining or decreasing price is referred to as

A.	value-pricing.

B.	customer-value pricing.

C.	competitive pricing.

D.	cost pricing.

E.	demand pricing.

34.

Creative marketers engage in value-pricing, which is the practice of simultaneously __________ while maintaining or decreasing price.

A.	decreasing product and service benefits

B.	increasing product and service benefits

C.	decreasing profit

D.	analyzing benefits

E.	decreasing cost

35.

Creative marketers engage in value-pricing, which is the practice of simultaneously increasing product and service benefits while

A.	increasing costs.

B.	increasing price.

C.	increasing advertising.

D.	decreasing costs.

E.	maintaining or decreasing price.

36.

A major grocery chain pays its baggers a regular hourly wage. The baggers not only pack the groceries, but they also will take customers' groceries to their car, regardless of the weather. The baggers are not permitted to accept tips, even if they are offered. This carryout service is an example of

A.	pricing enhancement.

B.	societal pricing.

C.	revenue sharing.

D.	value-pricing.

E.	cost-pricing.

37.

Many convenience stores now have mail slots where customers can pay their utility bills. The utility companies handle all the processing while the customers get the benefit of not having to use postage. The convenience store owner gets the advantage of the extra foot traffic. The mail slots are an example of

A.	societal pricing.

B.	revenue sharing.

C.	value-pricing.

barter.

E.	cost-pricing.

38.

Many cosmetology schools allow their advanced students to style hair for "real-world" clients for a reduced fee. The students benefit from the experience, the clients get a less expensive haircut, and the school is able to provide students with additional training without costing it anything; in fact, they even profit from it. This is an example of

A.	value-pricing.

B.	societal pricing.

C.	revenue sharing.

barter.

E.	cost-assist pricing.

39.

If a McDonald's menu board advertises Mini Meals under $3, McDonald's is most likely using which type of pricing strategy?

A.	predatory pricing

B.	value-pricing

C.	loss-leader pricing

D.	odd-even pricing

barter

40.

A reference value involves comparing the costs and benefits of

A.	substitute items.

B.	items of equal or greater value.

C.	products with which a consumer is familiar and items the consumer has not seen or used before.

D.	items from one particular distributor.

E.	intangible items.

41.

A reference value

A.	is relative to the amount of time and energy a consumer puts into the purchase process.

B.	is based upon the value assigned to similar items used by the consumer's peers.

C.	results from performing a careful break-even analysis.

D.	involves comparing the costs and benefits of substitute items.

E.	is based upon the differential between customers' "needs" and "wants."

42.

A buying situation can involve comparing the costs and benefits of substitute items—such as real sugar to the sugar substitute Splenda, which, although more expensive than sugar, is purchased by many consumers because it contains no calories. This situation involves the consumer considering

A.	a marginal analysis.

B.	a profit equation.

C.	a break-even analysis.

D.	price elasticity of demand.

E.	a reference value.

43.

If you wanted to buy a McDonald's Big Mac, medium fries, and a medium drink separately, it will cost you $8.27. However, if you purchased these three items together as part of the firm's Extra Value Meal package, you would pay only $5.69, saving $2.58. This Extra Value Meal price serves as __________ to you and other consumers, who compare the costs and benefits of substitute items to a bundle containing those items.

A.	a marginal analysis

B.	a profit equation

C.	a reference value

D.	a break-even analysis

E.	price elasticity of demand

44.

The __________ equation = (Unit price × Quantity sold) - Total cost.

A.	total revenue

B.	variable cost

C.	net present value

profit

E.	break-even point

45.

A firm's profit equation demonstrates that profit equals

A.	Total cost + Total revenue.

B.	Total revenue - Total cost.

C.	Marginal revenue - Marginal cost.

D.	Price × Quantity.

E.	Total revenue + Marginal cost.

46.

The formula Total revenue - Total cost or [(Unit price × Quantity sold) - (Fixed cost + Variable cost)] represents

A.	the value equation.

B.	the sales ratio.

C.	average revenue.

D.	the break-even point.

E.	the profit equation.

47.

A firm's profit equation equals

A.	Total cost + Total revenue or [(Fixed cost + Variable cost) + (Unit price × Quantity sold)].

B.	Total revenue - Total cost or [(Unit price × Quantity sold) - (Fixed cost + Variable cost)].

C.	Total cost - Marginal cost or [(Fixed cost + Variable cost) - (Unit price × Quantity sold)].

D.	Total cost - Variable cost or [(Fixed cost + Variable cost) - (Unit price × Quantity sold)].

E.	Total revenue/Total cost or [(Unit price × Quantity sold) ÷ (Fixed cost + Variable cost)].

48.

Calculate a firm's total revenue (TR) using the following information: the unit price (P) for a product is $40; the quantity sold (Q) is 2,000; the fixed cost (FC) is $50,000; and the variable cost (VC) is $20,000.

$10,000

$50,000

$110,000

$150,000

E.	cannot be determined with the information provided

49.

Which of the following are examples of elements involved in Step 1 of the price-setting process?

A.	profit, market share, and survival

B.	estimation of demand, sales revenue, and price elasticity

C.	cost estimation, marginal analysis, and break-even analysis

D.	demand for the product class and brand, newness of the product, and competition

E.	market segmentation targeting, and positioning

50.

Which of the following would be an example of an objective in Step 1 of the price-setting process?

A.	We need to set an initial price of $259 per unit.

B.	We need to obtain a 10 percent market share.

C.	We need to find the least expensive distributor.

D.	We need to make allowances for large quantity orders.

E.	We need to increase the price during the holiday shopping season.

51.

Which of the following would be an example of an objective in Step 1 of the price-setting process?

A.	We need to set an initial price of $259 per unit.

B.	We need to find the least expensive distributor.

C.	We need to make a profit of at least $1.2 million.

D.	We need to make allowances for large quantity orders.

E.	We need to increase the price during the holiday shopping season.

52.

Which of the following would be an example of an objective in Step 1 of the price-setting process?

A.	We need to find the least expensive distributor.

B.	We need to make allowances for large quantity orders.

C.	We need to increase the price during the holiday shopping season.

D.	We need to forget profits right now; just make sure we break even.

E.	We need to hire a professional accountant.

53.

Which of the following would be an example of a constraint in Step 1 of the price-setting process?

A.	We can rely on our reputation for our other products in the line.

B.	Experts are predicting a surge in global demand.

C.	We need to make allowances for large quantity orders.

D.	We should increase the price during the holiday shopping season.

E.	Remember, we don't know what the selective demand for this new product will be.

54.

Which of the following would be an example of a constraint in Step 1 of the price-setting process?

A.	We can rely on our reputation for our other products in the line.

B.	Experts are predicting a surge in global demand.

C.	We need to make allowances for large quantity orders.

D.	We should increase the price during the holiday shopping season.

E.	We're going to face some stiff competition.

55.

An analysis of a prospective product shows that sales for it are expected to grow by at least 10 percent each year over the next five years before it enters the maturity phase of its product life cycle. This type of analysis would provide useful information in which step of the price-setting process?

A.	identifying pricing objectives and constraints

B.	determining cost, volume, and profit relationships

C.	estimating demand and revenue

D.	selecting an appropriate (approximate) price lining strategy

E.	making special adjustments to list or quoted price

56.

Which of the following represent elements of Step 2 of the price-setting process?

A.	profit, market share, and survival

B.	estimation of demand, sales revenue, and price elasticity

C.	cost estimation, marginal analysis, and break-even analysis

D.	demand for the product class and brand, newness of the product, and competition

E.	market segmentation, targeting, and positioning

57.

Objectives such as profit, market share, and survival, as well as constraints such as demand for product class and brand, newness, costs, and competition are issues that would be addressed during __________ of the price-setting process.

Step 1

Step 2

Step 3

Step 4

Step 5

58.

Estimating demand, sales revenue, and price elasticity are issues that would be addressed during __________ of the price-setting process.

Step 1

Step 2

Step 3

Step 4

Step 5

59.

George and Alice Renfro decided to start a family business in 1990 to produce chowchow, a Southern regional food. To determine how they would price the chowchow, the Renfros had to examine (1) the demand for the product (e.g., would people rather eat homemade or store-bought?); (2) the costs of the jars for and bottling of the chowchow; and (3) and the cost to distribute the product to area grocery stores. For the Renfros, Step 1 of their price-setting process consists of

A.	identifying pricing constraints.

B.	estimating break-even points and revenue points.

C.	setting the list price.

D.	selecting an approximate price level.

E.	determining cost, volume, and profit relationships.

60.

Which of the following statements would most likely be spoken during Step 2 of the price-setting process?

A.	"It's important to offer discounts to seniors."

B.	"We have to try to achieve an 8 percent profit share."

C.	"The starting price should be $4.99 and we can raise the price again in six months."

D.	"But, if we increase the price even by $1, how many customers will we lose?"

E.	"We should probably price the extra-large version somewhere between $600 and $650."

61.

Estimating cost, conducting a marginal analysis, and performing a break-even analysis are issues that would be addressed during __________ of the price-setting process.

Step 1

Step 2

Step 3

Step 4

Step 5

62.

Which of the following are elements of Step 3 in the price-setting process?

A.	profit, market share, and survival

B.	estimation of demand, sales revenue, and price elasticity

C.	cost estimation, marginal analysis, and break-even analysis

D.	demand for the product class and brand, newness of the product, and competition

E.	market segmentation targeting, and positioning

63.

Which of the following statements would most likely be spoken during Step 3 in the price-setting process?

A.	"In order to break even, we will need to sell at least 500,000 units."

B.	"We have to try to achieve an 8 percent profit share."

C.	"The starting price should be $4.99 and we can raise the price again in six months."

D.	"But, if we increase the price even by $1, how many customers will we lose?"

E.	"We should probably price the extra large version somewhere between $600 and $650."

64.

The break-even point for a large grain farming operation was calculated to be 2 million bushels of corn. Break-even analysis would take place during which step of the price-setting process?

A.	identify pricing objectives and constraints

B.	determine cost, volume, and profit relationships

C.	estimate demand and revenue

D.	select an approximate price level

E.	make special adjustments to list or quoted price

65.

Selecting an approximate price level would occur during __________ of the price-setting process.

Step 1

Step 2

Step 3

Step 4

Step 5

66.

Setting list or quoted prices would occur during __________ of the price-setting process.

Step 1

Step 2

Step 3

Step 4

Step 5

67.

Making special adjustments to the list or quoted price would occur during __________ of the price-setting process.

Step 2

Step 3

Step 4

Step 5

Step 6

68.

While pricing objectives frequently reflect corporate goals, pricing constraints often relate to

A.	stockholder demands.

B.	political ideology.

C.	conditions existing in the marketplace.

D.	an organization's code of ethics.

E.	the financial realities within the organization itself.

69.

Specifying the role of price in an organization's marketing and strategic plans is referred to as

A.	choosing a pricing plan.

B.	defining a profit mission.

C.	developing pricing constraints.

D.	setting pricing objectives.

E.	determining the list or quoted price.

70.

Pricing objectives refers to

A.	reconciling the prices charged by an organization to the values set forth in its business mission.

B.	taking specific steps to capitalize on an organization's internal strengths as they apply to price.

C.	specifying the role of price in an organization's marketing and strategic plans.

D.	taking specific steps to compensate for an organization's weaknesses as they apply to price.

E.	subjectively setting intrinsic values to all products and services offered by an organization.

71.

Which of the following statements regarding pricing objectives is most accurate?

A.	Pricing objectives should never change.

B.	Pricing objectives may change depending on the financial position of the company.

C.	Pricing objectives may change depending upon the relative market share of competitors.

D.	Pricing objectives are established exclusively by the marketing department.

E.	Pricing objectives are extremely sensitive to even the slightest change in the local economy.

72.

All of the following are examples of pricing objectives except

A.	market share.

survival.

C.	unit sales.

D.	social responsibility.

E.	competitors' prices.

73.

A firm's profit objective is often measured in terms of ROI. The acronym ROI stands for

A.	risk opportunity investment.

B.	revised organizational incentives.

C.	return on investment.

D.	regulated organizational investments.

E.	replenishment of organizational inventories.

74.

A firm's profit objective is often measured in terms of ROA. The acronym ROA stands for

A.	return on assets.

B.	risk opportunity assessment.

C.	return of allowances.

D.	return on average equity.

E.	risk opportunity analysis.

75.

Three different objectives relate to a firm's profit, which is often measured in terms of return on investment. One objective, known as __________, is where a company gives up immediate profit in exchange for achieving a higher market share in the hopes of penetrating competitive markets.

A.	maximizing current profit

B.	target return

C.	break-even strategy

D.	minimizing risk

E.	managing for long-run profits

76.

Three different objectives relate to a firm's profit, which have different implications for pricing strategy. The three profit-oriented objectives include __________, managing current profit, and achieving a target return.

A.	accumulating profits

B.	managing for long-run profits

C.	reinvesting profits

D.	redistributing profits

E.	maximizing gross margin

77.

Managing for long-run profits implies that a company will

A.	give up immediate profit in exchange for achieving a higher market share in hopes of penetrating competitive markets.

B.	maintain a given price range to ensure there is no loss of customers over time, even if the profit margin declines.

C.	invest excess cash in bonds and certificates of deposit in order to counteract any inflationary economic changes in the future.

D.	reinvest all profits into market research or product research rather than returned to shareholders.

E.	drop all products, product lines, or divisions that cannot maintain their pricing goals.

78.

Three different objectives relate to a firm's profit, which is often measured in terms of return on investment. One objective, known as _________, is common in many firms because the targets can be set and performance measured quickly.

A.	managing for long-run profits

B.	target return

C.	break-even strategy

D.	maximizing current profit

E.	minimizing risk

79.

A maximizing current profit objective implies that a company chooses to

A.	set targets whose performance can be measured quickly.

B.	give up immediate profit in exchange for achieving a higher market share in hopes of penetrating competitive markets.

C.	set a profit goal that is often determined by its board of directors.

D.	reduce investment in any further market or product research.

E.	set prices based on return on sales.

80.

Three different objectives relate to a firm's profit, which is often measured in terms of return on investment. One objective, known as _________, occurs when a firm sets a profit goal, usually determined by its board of directors.

A.	maximizing current profit

B.	managing for long-run profits

C.	target return

D.	break-even strategy

E.	minimizing risk

81.

Three different objectives relate to a firm's profit, which have different implications for pricing strategy. The three profit-oriented objectives include managing for long-run profits, maximizing current profit objectives, and

A.	accumulating profits.

B.	reinvesting profits.

C.	redistributing profits.

D.	maximizing gross margin.

E.	achieving a target return.

82.

A target return profit objective implies that a company chooses to

A.	set targets whose performance can be measured quickly.

B.	give up immediate profit in exchange for achieving a higher market share in hopes of penetrating competitive markets.

C.	set a profit goal that is often determined by its board of directors.

D.	reduce investment in any further market or product research.

E.	set prices based on return on sales.

83.

Given that a firm's profit is high enough for it to remain in business, an objective may be to __________, which will in turn lead to increases in market share and profit.

A.	increase the commitment to social responsibility

B.	increase dollar sales revenue

C.	decrease unit volume while maintaining price

D.	increase research and development funding for new product line extensions

E.	continue with previous policies that seem to be working

84.

Which of the following statements regarding sales goals is most accurate?

A.	For marketing managers, sales revenue or unit sales can be easily translated into meaningful targets for a product line or brand.

B.	Cutting prices for a single product in a product line to raise unit sales often results in an increase in sales for related products in the line.

C.	Very often, cutting prices results in a decrease in market share.

D.	Setting unit volume sales as a pricing objective results in price wars with competitors, so the practice is limited to industries with few competitors.

E.	An advantage of increasing unit volume sales is that it always results in an increase in profits.

85.

The ratio of the firm's sales revenues or unit sales to those of the industry (competitors plus the firm itself) is referred to as

A.	target return on sales.

B.	industry profit.

C.	unit volume.

D.	market share.

profit.

86.

Market share is the ratio of the __________ to those of the industry, including the firm itself.

A.	target return on sales

B.	marginal profit of the firm

C.	firm's sales revenues or unit sales

D.	marketing expenses of the firm

E.	profits of the firm

87.

Companies often pursue a market share objective when

A.	industry sales are flat or declining.

B.	profits are increasing.

C.	industry sales are beginning to rise.

D.	there is a sudden increase in production costs.

E.	stockholders are seeking higher dividends.

88.

Which of the following statements regarding a market share pricing objective is most accurate?

A.	A market share objective is often difficult for product managers since stockholders are looking for immediate dividends (return of profits).

B.	Although increased market share is a primary goal of some firms, others see it as a means to other ends, such as increased sales or profits.

C.	Selecting market share as a pricing objective is particularly effective if industry sales are rising.

D.	An advantage of market share as a pricing objective is that it is particularly insensitive to competitors' actions.

E.	Ironically, a market share objective is realized by raising prices in order to increase consumer confidence during the decline stage of a product's life cycle.

89.

An online movie streaming service charges $14.99 per month for its basic package. However, when a competitor introduced the same service at $13.99, the firm dropped its price to $13.99. The firm most likely made this price reduction in an attempt to

A.	decrease revenue but increase profit.

B.	increase profit by decreasing revenue.

C.	maintain market share.

D.	decrease market share.

E.	increase efficiency.

90.

If the CEO of the Clorox Co. were to say, "We want to control 60 percent of the bleach market within the next five years," he would have set a __________ pricing objective.

profit

sales

C.	unit volume

D.	market share

E.	social responsibility

91.

Unit volume as a pricing objective refers to

A.	the quantity of products to be produced or sold.

B.	the ratio of price per unit to unit variable cost.

C.	the ratio of production costs to the minimum sales price that would still generate profit.

D.	the total quantity of product sold by a firm relative to the total quantity of product sold by all firms in the industry.

E.	variable cost expressed on a per unit basis for a product.

92.

A negative aspect of selecting unit volume as a pricing objective is that

A.	production often cannot keep up with demand.

B.	there are increased carrying costs with extensive inventories.

C.	if price reductions are used to achieve volume objectives, it can sometimes come at the expense of profits.

D.	it can create competition between divisions within the organization itself, causing conflicts over the allocation of resources.

E.	it always positively correlates with a sales revenue objective.

93.

Some specialty retailers pursue a __________ pricing objective to generate cash to ward off bankruptcy.

A.	market share

survival

C.	sales revenue

D.	single product line

profit

94.

RadioShack, an electronics retail chain, couldn't compete with the prices offered by other retailers. The company enacted price-matching programs and promoted large discounts on its merchandise to raise cash and hopefully stave off bankruptcy. The best pricing objective at this point for RadioShack most likely was

profit.

B.	market share.

C.	unit volume.

survival.

E.	social responsibility.

95.

A firm may forgo higher profit on sales and follow which of the following pricing objectives because it wants to recognize its stakeholder obligations?

profit

B.	market share

C.	unit volume

survival

E.	social responsibility

96.

Factors that limit the range of prices a firm may set are referred to as

A.	pricing restraints.

B.	pricing constraints.

C.	demand factors.

D.	pricing barriers.

E.	pricing restrictions.

97.

Pricing constraints are

A.	the controllable elements in a firm's marketing mix that allow it to charge the highest price possible.

B.	formulas used in establishing break-even points, price elasticity of demand, and marginal analysis of revenues and costs.

C.	factors that limit the range of prices a firm may set.

D.	factors that expand the range of prices a firm may set.

E.	virtual boundaries used when setting the initial price on a new product.

98.

Pricing constraints refers to

A.	barriers that must be overcome in order to set pricing objectives.

B.	competitive pricing advantages one firm has over another.

C.	different pricing strategies for each of the firm's products.

D.	factors that limit the range of prices a firm may set.

E.	barriers to entry a firm faces when launching a new product.

99.

Which term describes factors that limit the range of prices a firm may set?

A.	price fixings

B.	pricing constraints

C.	price elasticities

D.	pricing demands

E.	pricing margins

100.

All of the following are examples of pricing constraints except

A.	familiarity of the product.

B.	competitors' prices.

C.	newness of the product.

D.	social responsibility.

E.	demand for the product class, product, or brand.

101.

Which of the following statements about consumer demand as a pricing constraint is most accurate?

A.	The number of potential buyers for the product class has little effect on the price a seller can charge.

B.	The number of potential buyers for the product affects the price a seller can charge, but only if the product is a luxury item.

C.	The number of potential buyers for the product affects the price a seller can charge, but only if the product is a necessity item.

D.	The number of potential buyers for the brand affects the price a seller can charge in the growth stage of a product life cycle, but not in the introductory stage.

E.	Whether the item is a luxury or a necessity affects the price a seller can charge.

102.

Which of the following statements regarding pricing constraints is most accurate?

A.	Generally, the greater the demand for a product, the higher the price that can be set.

B.	At the corporate level, when setting pricing constraints, a firm must disregard current conditions in the marketplace because they are too temporal for long-term planning.

C.	Pricing constraints must always be set, but they are rarely enforced.

D.	It is possible to create pricing constraints with the greatest range possible in order to anticipate any and all changes in the marketing environment.

E.	Even if a firm is trying to satisfy its obligations to its customers and society in general, it should ignore setting pricing constraints.

103.

The newer a product and the earlier it is in its life cycle,

A.	the lower the price the firm must charge.

B.	the more competition it has.

C.	the higher is the price that can usually be charged.

D.	the lower its production costs are.

E.	the lower its unit variable cost is.

104.

Which of the following statements about the product life cycle as a pricing constraint is most accurate?

A.	The newer a product is, the higher the price that can usually be charged.

B.	The later in the product life cycle a product is, the higher the price that can usually be charged.

C.	Once a product is considered nostalgic, the price will continue to rise indefinitely.

D.	Fads will generally have only two price points—high and low—but the values of those price points usually will be within 10 percent of each other.

E.	Prices should not be changed until a product reaches its maturity stage.

105.

Which of the following statements regarding pricing constraints is most accurate?

A.	When a product is in the introductory stage of the product life cycle, there is very little latitude in setting the initial price since consumers still don't know what the product can really do.

B.	The newer a product and the earlier it is in its life cycle, the higher the price that can usually be charged.

C.	The greater the number of products in a company's product line, the less the product features of similar products can affect price.

D.	The newest addition to a company's product line should always have the highest price in order to maintain the value of existing brands.

E.	To avoid cannibalization, the newest product addition to a company's product line should never have a price lower than the other offerings in the line.

106.

Occasionally, prices may rise later in the product's life cycle. This is often due to

A.	new competitors entering the market.

B.	production economies of scale.

C.	a decrease in the price of raw materials.

D.	nostalgia and fad factors.

E.	the type of competitive market shifts from pure monopoly to pure competition.

107.

At one point, people were willing to pay hundreds of dollars on eBay for a Beanie Baby toy that originally cost a fraction of that amount. Today, those same Beanie Babies can be found at garage sales all over the country for less than a dollar apiece. This is most likely due to

A.	faulty craftsmanship in later production batches.

B.	a sharp downturn in the economy.

C.	the new, more nostalgic fad of bobblehead dolls.

D.	too many counterfeit Beanie Babies entering the country.

E.	a product becoming a fad and then losing its fad appeal.

108.

Which of the following statements is most accurate?

A.	Nonprofit organizations are exempt from having to cover the costs of producing and/or marketing their products.

B.	Socially responsible corporations should have the pricing constraint of covering all costs of producing and marketing their products, but they should not price their products to earn a profit.

C.	Marketers must ensure that firms in their channels of distribution make an adequate profit or they will be cut off from their customers.

D.	Price elasticity of demand makes it virtually impossible for companies to cover all their marketing and production costs at all times.

E.	Marketing and production costs are the most difficult and expensive aspect of pricing because they draw so much capital away from other departments in the organization.

109.

A pair of $200 designer denim jeans cost so much because

A.	the labor to make them comprises the largest percentage of the final price.

B.	the marketer must cover all of its operating costs while earning a profit.

C.	the specialty retailers that sell them account for only 25 percent of the cost so that the jeans can experience "demand pull."

D.	the contract manufacturer for the jeans receives the least percentage of the final price.

E.	the marketer of the designer denim jeans makes the largest percentage of the final price.

110.

Which of the following statements regarding price changes is most accurate?

A.	Product prices should change monthly, whereas services prices should change quarterly.

B.	Changing a product's price too frequently creates antagonism among consumers, yet changing prices too infrequently makes them feel the company is not improving its product or service sufficiently.

C.	Supermarkets should change their prices every week since customers are expecting new prices in the weekly flyers they receive in the mail.

D.	Companies selling products over the Internet can instantly change their prices whenever the need arises.

E.	Internet price changes are regulated by the Internet Fair Practices Act to protect consumers against price gouging.

111.

During the __________ stage of its product life cycle, a firm has great latitude in setting and maintaining a premium price.

decline

maturity

growth

D.	accelerated development

E.	introduction

112.

Over time, Apple has had great latitude in setting and maintaining a premium price. Its long-term strategy was to have only a single model in a product line targeted at high-end users. However, lower-cost rival smartphones, many of which were powered by Google's Android operating system, entered the market. One concern for Apple is

A.	the ability to change prices quickly.

B.	speeding up the diffusion of innovation process.

C.	brand extension confusion.

D.	charging a lower price to gain a foothold in the market.

E.	the challenge of pricing a single product versus multiple products in an expanding product line.

113.

Which of the following statements regarding the seller's price is most accurate?

A.	Internet price changes are regulated by the Internet Fair Practices Act to protect consumers against price gouging.

B.	The seller's price is constrained by the type of market within which it competes.

C.	Price changes cannot be regulated in a monopoly.

D.	The type of market has little or no impact on a firm in a monopolistic competitive environment.

E.	Competitive environments should affect a firm's pricing objectives, but not its actual product prices.

114.

Most public utilities must petition regulatory commissions in order to obtain a rate increase. Which pricing constraint does this statement demonstrate?

A.	demand for the product, class, or brand

B.	newness of product in the life cycle

C.	costs of production

D.	type of competitive market

E.	single product versus a product line

115.

Economists have identified four types of competitive markets, which are

A.	capitalistic, monopolistic, socialist, and communist.

B.	pure monopoly, monopolistic competition, oligopoly, and pure competition.

C.	free market, restrained market, government-regulated, and command economy.

D.	market economy, command economy, traditional economy, and controlled economy.

E.	open market, consumer-dominated market, service market, and product market.

116.

Economists have identified four types of competitive markets: pure monopoly, monopolistic competition, oligopoly, and

A.	pure competition.

B.	government-dominated.

C.	capitalist.

D.	socialist.

E.	communist.

117.

Economists have identified four types of competitive markets: pure monopoly, pure competition, oligopoly, and

A.	capitalism.

B.	socialism.

C.	monopolistic competition.

D.	consumer-dominated.

E.	government-dominated.

118.

Economists have identified four types of competitive markets: pure monopoly, monopolistic competition, pure competition, and

A.	capitalism.

B.	socialism.

C.	consumer-dominated.

D.	oligopoly.

E.	government-dominated.

119.

Economists have identified four types of competitive markets: oligopoly, monopolistic competition, pure competition, and

A.	capitalism.

B.	socialism.

C.	consumer-dominated.

D.	government-dominated.

E.	pure monopoly.

120.

List the following competitive markets from most competitive to least competitive.

A.	monopolistic competition, pure monopoly, pure competition, and oligopoly

B.	pure competition, monopolistic competition, oligopoly, and pure monopoly

C.	pure competition, monopolistic competition, pure monopoly, and oligopoly

D.	oligopoly, pure competition, monopolistic competition, and pure monopoly

E.	pure monopoly, oligopoly, monopolistic competition, and pure competition

121.

List the following competitive markets from least competitive to most competitive.

A.	monopolistic competition, pure monopoly, pure competition, and oligopoly

B.	pure competition, monopolistic competition, oligopoly, and pure monopoly

C.	pure competition, monopolistic competition, pure monopoly, and oligopoly

D.	oligopoly, pure competition, monopolistic competition, and pure monopoly

E.	pure monopoly, oligopoly, monopolistic competition, and pure competition

122.

The particular type of competition dramatically influences the range of price competition and, in turn,

A.	the nature of product differentiation and extent of advertising.

B.	the nature of product differentiation and extent of on-hand inventory.

C.	the degree of involvement with each of the organization's stakeholders.

D.	the degree of involvement with both retailers and wholesalers.

E.	the relationship between product lines and product classes.

123.

The competitive market situation in which many sellers follow the market price for identical, commodity products is referred to as

A.	a pure monopoly.

B.	an oligopoly.

C.	a monopolistic competition.

D.	a pure competition.

E.	an oligopolistic competition.

124.

Pure competition is the competitive situation where

A.	many sellers follow market price for identical, commodity products.

B.	one seller sets the price for a unique product.

C.	few sellers are sensitive to one another's prices.

D.	many sellers compete on nonprice factors.

E.	one or few sellers compete solely on nonprice factors.

125.

If competitive market circumstances are such that there is almost no price competition, no product differentiation, and the only advertising informs prospects that the product is available, then the competitive market in this industry must be

A.	a pure monopoly.

B.	pure competition.

C.	an oligopoly.

D.	monopolistic competition.

E.	monopolistic oligopoly.

126.

The marketplace sets the price for wheat, so farmers who are trying to sell their wheat crops don't have to create a pricing strategy. The wheat is sold in __________ type of competitive market.

A.	an oligopoly

B.	a pure monopoly

C.	a pure competition

D.	a monopolistic competition

E.	a monopolistic oligopoly

127.

The competitive market situation in which many sellers compete on nonprice factors is referred to as

A.	a pure monopoly.

B.	an oligopoly.

C.	pure competition.

D.	monopolistic competition.

E.	monopolistic oligopoly.

128.

In which type of industry would a marketing director be most likely to say, "We have to let the customer know that our product is the only one that comes with its own tracking device"?

A.	pure monopoly

oligopoly

C.	pure competition

D.	monopolistic oligopoly

E.	monopolistic competition

129.

There are more than 100 companies that manufacture natural and artificial flavorings used to enhance the taste of food before it is sold to consumers. Many of these manufacturers are regional operations. Many differentiate themselves from the competition in their advertising by specializing in one or two types of foods for which they provide flavorings. Some use their distribution strategies as a means of differentiating themselves from their competition. This industry is most likely an example of

A.	pure monopoly.

B.	oligopoly.

C.	monopolistic competition.

D.	bilateral monopoly.

E.	monopolistic oligopoly.

130.

Dozens of regional, private brands of peanut butter compete with national brands like Skippy and Jif. In this type of market,

A.	both price competition and nonprice competition exist.

B.	these firms must maintain local customer loyalty.

C.	these private brands must go head-to-head or steal market share from nationally recognized brands.

D.	these private brands must keep other regional businesses from entering the market.

E.	these private brands could avoid cannibalization if they sell their product both in stores and online.

131.

The competitive market situation in which the few sellers are sensitive to each other's prices is referred to as

A.	pure monopoly.

B.	oligopoly.

C.	monopolistic competition.

D.	pure competition.

E.	oligopolistic competition.

132.

An oligopoly is a competitive market situation where

A.	many sellers follow market price for identical, commodity products.

B.	one seller sets the price for a unique product.

C.	few sellers are sensitive to one another's prices.

D.	many sellers compete on nonprice factors.

E.	one or few sellers compete solely on nonprice factors.

133.

If competitive market circumstances are such that there are few sellers who are sensitive to each other's prices, and the purpose of advertising is to inform but avoid price competition, then __________ must exist in the industry.

A.	a pure monopoly

B.	monopolistic competition

C.	pure competition

D.	an oligopoly

E.	oligopolistic competition

134.

All of the following statements are true about an oligopolistic competitive market situation except

A.	the products can be differentiated or undifferentiated.

B.	advertising that uses comparative (head-to-head) messages is the norm.

C.	the purpose of advertising is to inform.

D.	sellers try to avoid price competition, which can lead to price wars.

E.	firms in these markets stay aware of a competitor's price cuts or increases and may follow suit.

135.

Go to any Kroger supermarket and walk to the cereal aisle. You will notice that four major brands—Kellogg's, Quaker, General Mills, and Post—seem to occupy most of the shelf space. These cereals are all priced about the same. There is a good deal of product differentiation as the result of licensing agreements with movie studios (Disney, DreamWorks, etc.) and through the use of different health claims. The cereal industry is an example of what type of competitive market?

A.	a pure monopoly

B.	monopolistic competition

C.	pure competition

D.	monopolistic oligopoly

E.	an oligopoly

136.

Microsoft, Sony, and Nintendo are the three principal firms in the video game console market. How much price competition is most likely for video game makers?

A.	There is almost none; the market sets the price.

B.	There is some competition within a range of prices.

C.	There is generally a price leader that sets the price.

D.	Each firm is aware of each other's prices and may adjust prices based on those of the other firms.

E.	Price is set by the seller but regulated by the government.

137.

The competitive market situation in which one seller sets the price for a unique product is referred to as

A.	pure monopoly.

B.	oligopoly.

C.	monopolistic competition.

D.	pure competition.

E.	monopolistic oligopoly.

138.

Pure monopoly is the competitive market situation where

A.	many sellers follow market price for identical, commodity products.

B.	one seller sets the price for a unique product.

C.	few sellers are sensitive to one another's prices.

D.	many sellers compete on nonprice factors.

E.	one or a few sellers compete solely on nonprice factors.

139.

If competitive market circumstances are such that there is no price competition, no product differentiation, and the purpose of advertising is to increase demand for the product class, then __________ must exist in the industry.

A.	an oligopoly

B.	monopolistic competition

C.	a pure monopoly

D.	pure competition

E.	oligopolistic competition

140.

The marketing director for __________ is most likely to believe the following statement: "The purpose of advertising is to increase demand for the product class."

A.	an oligopolistic competitor

B.	a monopolistic competitor

C.	a pure competition competitor

D.	a pure monopolist competitor

E.	a competitive oligopolistic competitor

141.

Florida Power & Light, an electric power company, is the only source of electricity for consumers in most parts of the Florida panhandle. The company is __________, despite the fact that it must seek approval from the state utility commission for the rates it can charge.

A.	a free enterprise firm

B.	an oligopoly

C.	a monopolistic competitor

D.	a competitor in a pure competition

E.	a pure monopoly

142.

A manufacturing company that introduces a product must know or anticipate what specific price its __________ currently charge or may charge in the future.

A.	present and potential competitors

B.	financial institutions

suppliers

unions

E.	regulators

143.

With consumers able to compare prices on the Internet, they can make more ___________ buying decisions.

efficient

B.	profitable

effective

relative

affective

144.

All of the following are legal and/or ethical considerations when setting a final price except

A.	geographical pricing.

B.	predatory pricing.

C.	showrooming.

D.	price fixing.

E.	deceptive pricing.

145.

Basic to setting a product's price is the extent of __________. This information is used in estimating the revenues the firm expects to receive.

A.	management's commitment to the product relative to other products in the line

B.	curiosity or interest potential consumers expressed during market testing

C.	customer demand for it

D.	the firm's promotional budget

E.	distribution requirements

146.

Marketing executives must translate estimates of customer demand into estimates of

A.	personnel.

B.	advertising expenditures.

C.	ancillary product support.

D.	revenues the firm expects to receive.

supply.

147.

Demand curve refers to a graph that relates

A.	the quantity sold and price, which shows the maximum number of units that will be sold at a given price.

B.	the quantity sold and price, which shows the minimum number of units that must be sold to break even.

C.	the quantity sold and price, which shows the minimum number of units that must be sold in order to make a profit.

D.	total production costs to various price points in order to determine how many units must be sold in order to realize a predetermined profit.

E.	primary demand to selective demand.

148.

The maximum quantity of products consumers will buy at given price is shown by

A.	a demand curve.

B.	a price constraint.

C.	a break-even point.

D.	a supply curve.

E.	a marginal revenue curve.

149.

The horizontal axis of a demand curve graph represents

A.	market growth rate.

B.	relative market share.

C.	price per unit.

D.	potential profit in dollars.

E.	quantity demanded.

150.

The vertical axis of a demand curve graph represents

A.	market growth rate.

B.	relative market share.

C.	price per unit.

D.	potential profit in dollars.

E.	quantity demanded.

151.

A demand curve graph typically appears as

A.	a parabola with the apex representing the highest price that can be charged without losing customers.

B.	a diagonal line going from upper left to lower right demonstrating that as price goes down, demand goes up.

C.	an inverted parabola with the lowest point representing the lowest price that can be charged and still meet the company's profit objectives.

D.	a diagonal line going from lower left to upper right demonstrating that as prices go up, demand goes up proportionately.

E.	two intersecting lines that identify the point at which supply and demand are exactly the same.

152.

A movement along a demand curve (up or down) for a product occurs ___________________, assuming that other factors such as consumer tastes, price and availability of substitutes, and consumer incomes remain unchanged.

A.	when its price is lowered or increased and the quantity demanded for it correspondingly increases or decreases

B.	when its demand is lowered or increased and the price offered for it correspondingly increases or decreases

C.	when its demand and price are lowered

D.	when its demand and price are increased

E.	at the break-even point

153.

If the price for Red Baron frozen cheese pizzas moves from $8 to $6 per unit along a demand curve D₁, most likely the quantity demanded

A.	increases.

B.	decreases.

C.	stays the same.

D.	has no relationship to the price.

E.	could not be able to be plotted.

154.

Which of the following illustrates a shift in the demand curve?

A.	When prices remain the same, there is a significant decrease in demand.

B.	As the price is raised, the quantity demanded increases, assuming all else stays the same.

C.	When prices remain the same, there is an increase or decrease in demand.

D.	As the price is lowered, the quantity demanded decreases, assuming all else stays the same.

E.	An internal matter has forced a price change of some type, but it does not impact demand.

155.

Factors that determine consumers' willingness and ability to pay for products and services are referred to as

A.	supply factors.

B.	demand factors.

C.	affordability factors.

D.	elasticity factors.

E.	macro environmental factors.

156.

Demand factors refers to

A.	the number of consumers who can afford to purchase a product or service.

B.	the price that should be charged for a given product.

C.	consumers' willingness and ability to pay for products and services.

D.	the number of consumers who want to purchase a product.

E.	the number of consumers who can purchase a product.

157.

All of the following are demand factors except

A.	the price of similar products.

B.	consumer tastes.

C.	consumer income.

D.	the availability of similar products.

E.	the number of distribution outlets carrying the product.

158.

When estimating demand, price is not the only factor to be considered. Three other elements emphasized by economists are consumer tastes, price and availability of similar products, and

A.	consumer income.

B.	consumer psychographics.

C.	size of the target market.

D.	current political agendas.

E.	green substitutes.

159.

While consumer tastes and price and availability of similar products determine what consumers want to buy, consumer income determines

A.	where they buy.

B.	the degree of brand loyalty.

C.	the degree of repeat buys.

D.	what they can buy.

E.	their desire to buy.

160.

Which of the following statements about the factors that influence demand is true?

A.	As the availability of close substitutes increases, the demand for a product increases.

B.	As real consumer income increases, the demand for a product increases.

C.	As the price of close substitutes increases, the demand for a product declines.

D.	Changing consumer tastes have little impact on the demand for a product.

E.	As real consumer income decreases, the demand for a product increases.

161.

Campbell Soup spent seven years and $55 million on a secret project to produce a line of Intelligent Quisine (IQ) food products "scientifically proven to lower high levels of cholesterol, blood sugar, and blood pressure." The company was responding to the needs and desires expressed by consumers. However, after 15 months in an Ohio test market, Campbell Soup yanked the entire IQ line because

A.	Progresso Soups got to the stores first with a similar product and dominated the shelf space.

B.	the product's claims were exaggerated and not backed up with scientific data.

C.	the product was priced too high and there was too little product variety.

D.	the price was too low, leaving the consumer believing that Campbell sacrificed taste for nutrition.

E.	a downturn in the economy shifted people's desire from a healthy lifestyle to a desire for home and comfort. The new soups were too different from the product they remembered as children.

162.

There are a lot of skateboards on the market, but when it was launched the BMW Streetcarver was the only one with stabilizers and wheel design based on BMW's automobiles. This technology gave the BMW Streetcarver better control at high speeds and around sharp turns than any other brand. The skateboard was priced at $495, which left many consumers (especially young males) who might have wanted to buy the Streetcarver unable to afford it. This inability to pay for the high-priced BMW-made skateboard shows the effect of __________ on sales.

A.	demand factors

B.	macroeconomic environmental factors

C.	barter factors

D.	supply factors

E.	exchange parameters

163.

Mrs. Renfro's, Inc., sells 25 different relishes in 45 states. Mrs. Renfro's chipotle corn salsa is so popular that the company cannot make enough to keep its resellers stocked. Its price of $4.50 for a jar seems just right to consumers who savor its hot and spicy taste. The popularity of hot and spicy food is an example of a __________ that Mrs. Renfro's has taken advantage of to make its product a success.

A.	barter factor

B.	demand factor

C.	supply factor

D.	consumer index

E.	macroeconomic environmental factor

164.

SHAPE magazine is targeted at young women seeking healthier lifestyles. At a price of $3 per copy, 1.25 million copies are sold. If the price per issue is increased to $3.25, only 1 million copies would be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. From the information provided here, what is SHAPE magazine's total revenue obtained at the lower $3 price?

A.	$3,750,000

B.	$3,250,000

C.	$3,000,000

D.	$2,125,000

E.	$1,750,000

165.

Forever Quilting is a small company that makes quilting kits priced at $120 each. There is no quantity discount. The costs of the materials that go into each kit total $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $4,500 for the monthly salary of its owner. Last month the company sold 150 kits. Forever Quilting's total revenue for the month was

$4,300.

$6,200.

$7,500.

$10,500.

$18,000.

166.

The percentage change in quantity demanded relative to the percentage change in price is referred to as

A.	price elasticity of demand.

B.	demand derivative of price.

C.	average demand.

D.	marginal revenue.

E.	derived demand.

167.

Price elasticity of demand (E) is expressed as (∆ means change)

A.	E = Percentage change in price (%∆ in P) ÷ Percentage change in quantity demanded (%∆ in Q).

B.	E = Price (P) ÷ Quantity demanded (Q).

C.	E = Percentage change in quantity demanded (%∆ in Q) ÷ Percentage change in price (%∆ in P).

D.	E = Quantity demanded (Q) ÷ Price (P).

E.	E = Quantity demanded (Q) × Price (P).

168.

For the sake of simplicity and by convention, price elasticity figures are shown as

A.	positive numbers (0.64, 1.25, etc.).

B.	negative numbers (-0.64, -1.25, etc.).

C.	Greek letters (∑, ∏, etc.).

D.	Roman numerals (I, V, X, etc.).

E.	English consonants (P, Q, TR, etc.).

169.

Elastic demand exists when

A.	a small percentage decrease in price produces a smaller percentage increase in quantity demanded.

B.	a small percentage decrease in price produces a larger percentage increase in quantity demanded.

C.	an increase in price causes a larger increase in quantity demanded.

D.	the quantity demanded remains the same regardless of level of price.

E.	no change in price produces a small percentage change in quantity demanded.

170.

Which of the following statements about price elasticity of demand is most accurate?

A.	The more substitutes a product has, the more likely it is to be price elastic.

B.	All products show some price inelasticity.

C.	Nondiscretionary (necessary) purchases are price elastic.

D.	With inelastic demand, reducing price has a very large impact on revenues.

E.	With inelastic demand, manufacturers change prices frequently to capitalize on consumer behavior.

171.

Demand for a product is likely to be more price elastic if it

A.	is considered a necessity.

B.	has many substitutes.

C.	has few substitutes.

D.	requires a small cash outlay.

E.	is nondiscretionary.

172.

In a snack vending machine, consumers can select one of many choices. These snacks are

A.	an ideal example of unitary demand.

B.	likely to have a price elasticity equal to 1.

C.	more likely to be price elastic.

D.	likely to have a price elasticity less than 1.

E.	more likely to be price inelastic.

173.

Several companies produce latex gloves that are used in a variety of different industries. If one of the glove manufacturers decreases its price by just a few percentage points, it will result in a significant increase in quantity demanded. The demand for latex gloves is

A.	synergistic.

B.	inelastic.

unitary.

elastic.

static.

174.

Inelastic demand exists when

A.	a small percentage decrease in price produces a smaller percentage increase in quantity demanded.

B.	a small percentage increase in price produces a larger percentage increase in quantity demanded.

C.	an increase in price is impossible due to government restrictions.

D.	the quantity demanded remains the same regardless of any changes in marketing strategies.

E.	a small percentage decrease in price produces a smaller percentage increase in quantity supplied.

175.

If a firm finds the demand for one of its products is inelastic, it can increase its total revenues by

A.	lowering its price.

B.	increasing fixed costs only.

C.	increasing variable costs only.

D.	increasing both fixed and variable costs.

E.	raising its price.

176.

Recently, much of the Western U.S. experienced drought conditions and water usage was restricted in Denver. Yet, even though most people used less water, the price of water did not drop. When the drought was declared over, the water company raised water prices. However, the residents of Denver did not use less water. Here, water is

A.	price elastic.

B.	price sensitive.

C.	price inelastic.

D.	price insensitive.

E.	unitary elastic.

177.

Products such as disposable diapers usually have

A.	elastic demand.

B.	null elasticity.

C.	unitary demand.

D.	inelastic supply.

E.	inelastic demand.

178.

Price elasticity of demand is determined by a number of factors, such as the availability of substitutes, the necessity of the product or service, and

A.	the cash outlay of the purchase relative to a person's disposable income.

B.	the stage of the product or service in its product life cycle.

C.	the degree of carrying costs for the manufacturer or distributor.

D.	the financial resources of the organization itself.

E.	the ability of the organization to meet sudden increases in demand.

179.

Price elasticity of demand is determined by a number of factors, such as the necessity of the product or service, the cash outlay of the purchase relative to a person's disposable income, and

A.	the stage of the product or service in its product life cycle.

B.	the degree of carrying costs for the manufacturer or distributor.

C.	the availability of substitutes.

D.	the financial resources of the organization itself.

E.	the ability of the organization to meet sudden increases in demand.

180.

Price elasticity of demand is determined by a number of factors such as the availability of substitutes, the cash outlay of the purchase relative to a person's disposable income, and

A.	the stage of the product or service in its product life cycle.

B.	the degree of carrying costs for the manufacturer or distributor.

C.	the financial resources of the organization itself.

D.	the ability of the organization to meet sudden increases in demand.

E.	the necessity of the product or service.

181.

The total money received from the sale of a product is referred to as

profit.

B.	total revenue.

C.	average revenue.

D.	marginal revenue.

E.	derived demand.

182.

Total revenue refers to

A.	the profit made from selling a product or service.

B.	the net gain in sales revenue if the unit price is lowered.

C.	the least number of units sold needed to cover product, distribution, and promotional costs.

D.	the amount at which marginal costs exceed fixed costs.

E.	the total money received from the sale of a product.

183.

The total expense incurred by a firm in producing and marketing a product, which equals the sum of fixed cost and variable cost, is referred to as

A.	overhead cost.

B.	total cost.

C.	unit cost.

D.	average cost.

E.	marginal cost.

184.

Total cost refers to

A.	the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.

B.	the change in expenses that results from producing and marketing one additional unit of a product.

C.	the average amount of money received for selling one unit of a product or simply the price of that unit.

D.	the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.

E.	the total expense incurred by a firm in producing and marketing a product, which equals the sum of fixed cost and variable cost.

185.

Fixed cost refers to

A.	the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.

B.	the total expense incurred by a firm in producing and marketing a product, which equals the sum of overhead cost and variable cost.

C.	the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.

D.	the average amount of money received for selling one unit of a product or simply the price of that unit.

E.	the change in expenses that results from producing and marketing one additional unit of a product.

186.

The sum of the expenses of a firm that is stable and does not change with the quantity of the product that is produced and sold is referred to as

A.	fixed cost.

B.	total cost.

C.	variable cost.

D.	marginal cost.

E.	overhead cost.

187.

Rent, executive salaries, and insurance are typical examples of

A.	variable costs.

B.	fixed costs.

C.	unit costs.

D.	marginal costs.

E.	total costs.

188.

Which of the following is a typical example of a fixed cost?

taxes

B.	raw materials

C.	sales commissions

D.	building rental expense

E.	hourly wages

189.

Which of the following would be an example of a fixed cost for a company that makes carbon monoxide monitoring systems for workers to wear in hazardous areas?

A.	the lithium batteries that are used in each monitor

B.	the chest harness used to wear the monitor

C.	the insurance for the company's factory

D.	the free training videos that are sent to each new customer

E.	the stainless-steel, water-resistant cases in which the monitors are contained

190.

Variable cost refers to

A.	the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.

B.	the sum of the expenses of the firm that change with the quantity of a product that is produced and sold.

C.	the total expense incurred by a firm in producing and marketing a product, which equals the sum of fixed cost and marginal cost.

D.	the average amount of money received for selling one unit of a product or simply the price of that unit.

E.	the change in total cost that results from producing and marketing one additional unit of a product.

191.

The sum of the firm's expenses that change with the quantity of the product that is produced and sold is referred to as

A.	fixed cost.

B.	total cost.

C.	marginal cost.

D.	unit cost.

E.	variable cost.

192.

Which of the following is a typical example of a variable cost?

A.	shipping costs

B.	rent on a building

C.	executive salaries

D.	insurance premiums

E.	leases on delivery trucks

193.

Unit variable cost refers to variable cost expressed

A.	as the sum of all units sold.

B.	on a per unit basis for a product.

C.	as a percentage of total sales.

D.	as a percentage of fixed costs.

E.	as a percentage of total costs.

194.

The unit variable cost (UVC) equals variable cost (VC) divided by

A.	quantity (Q).

B.	fixed costs (FC).

C.	total cost (TC).

D.	total revenue (TR).

E.	price per unit of the product (P).

195.

Forever Quilting is a small company that makes quilting kits priced at $120. The costs of the materials that go into each kit total $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $4,500 for the monthly salary of its owner. Forever Quilting's unit variable cost for its kits is

$5.

$45.

$50.

$120.

$170.

196.

General Motors and Chrysler recently experienced financial distress resulting in near bankruptcies fundamentally because

A.	the Asian markets such as China, India, and Japan entered the North American market and captured an even larger share.

B.	the value-pricing strategy used by the "big three" was flawed and North Americans' perceptions of value had changed.

C.	they were continually using deceptive pricing when establishing the manufacturer's suggested retail price for their vehicles.

D.	their costs got out of control, causing their total costs to exceed their total revenues.

E.	their product line was not changing with the times in order to meet changing environmental standards regarding fuel economy and emissions.

197.

Break-even analysis refers to

A.	a process that investigates the difference between marginal revenue and marginal cost.

B.	a method of determining just how much a consumer is willing to pay for a product or service.

C.	a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output.

D.	the process of determining the quantity of product consumers will buy relative to the quantity produced by the firm.

E.	the graph that shows the maximum number of products consumers will buy at a given price.

198.

A technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output is referred to as

A.	break-even analysis.

B.	marginal analysis.

C.	sensitivity analysis.

D.	market analysis.

E.	tipping point analysis.

199.

The quantity at which total revenue and total cost are equal is referred to as

A.	the tipping point.

B.	the profitability point.

C.	incremental return on investment.

D.	the break-even point.

E.	sustainability.

200.

The break-even point (BEP) = [Fixed cost ÷ (Unit price - __________)].

A.	Total cost

B.	Total expense

C.	Marginal revenue

D.	Unit variable cost

E.	Total number of units produced or quantity

201.

The break-even point (BEP) = [__________ ÷ (Unit price - Unit variable cost)].

A.	Total cost

B.	Total expense

C.	Fixed cost

D.	Unit variable cost

E.	Total number of units produced or quantity

202.

The break-even point (BEP) = [Fixed cost ÷ (__________ - Unit variable cost)].

A.	Total cost

B.	Total expense

C.	Fixed cost

D.	Unit variable cost

E.	Unit price

203.

The owner of a small restaurant that sells takeout fried chicken and biscuits each month pays $2,500 in rent, $500 in utilities, $750 interest on his loan, insurance premium of $200, and $250 on advertising on local buses. A bucket of chicken is priced at $9.50. Unit variable costs for the bucket of chicken are $5.50. How many buckets of chicken does the restaurant need to sell to break even each month?

A.	442 buckets

B.	764 buckets

C.	1,050 buckets

D.	3,150 buckets

E.	4,200 buckets

204.

Each month, the owner of a car wash pays $2,500 in rent, $500 in utilities, $750 interest on the business loan, an insurance premium of $200, and $250 on advertising on local bus routes. A full-service car wash is priced at $10.50. Unit variable costs for the car wash are $7.50. At what level of revenue will the car wash break even?

$4,200

$10,500

$14,700

$30,000

$39,900

205.

You have been asked to calculate the break-even point for a new line of T-shirts. The selling price will be $25 per shirt. The labor cost is $5 per shirt. The administrative costs of operating the company are estimated to be $60,000 annually, and the sales and marketing expenses are $20,000 a year. Additionally, the cost of materials will be $10 per shirt. What is the break-even quantity?

A.	2,000 shirts

B.	3,200 shirts

C.	5,334 shirts

D.	8,000 shirts

E.	16,000 shirts

206.

Tim Marlow, the owner of The Clock Works, wanted to know how many clocks he must sell in order to cover his fixed cost at a given price. Marloq knew that he had total fixed costs of $20,000 for equipment, taxes, and a bank loan. He also had a unit variable cost of $20 per clock for labor and materials. If the price Marlow charges for each of his clocks is $40, what is his break-even point quantity?

A.	100 clocks

B.	334 clocks

C.	500 clocks

D.	1,000 clocks

E.	10,000 clocks

207.

Ampro-Mag is a small company that makes materials for safely controlling hazardous spills of all kinds. It sells these items as a neutralizing kit priced at $100. The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in trade journals, and $3,500 for the monthly salary of its owner. What is Ampro-Mag's monthly break-even point in terms of number of neutralizing kits sold?

40 kits

52 kits

104 kits

116 kits

520 kits

208.

A graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit or loss for a given quantity sold is referred to as a

A.	Gantt chart.

B.	demand curve.

C.	ROI analysis.

D.	cross-tabulation.

E.	break-even chart.

209.

A break-even chart is a graphic presentation

A.	that shows the maximum number of units that will be sold at a certain price.

B.	of a break-even analysis that shows when total revenue and total cost intersect to identify profit or loss for a given quantity sold.

C.	that relates variable costs in terms of product or service substitutes in order to determine which items or services would least affect total revenues.

D.	that relates profits and revenues versus total costs in order to determine the time frame in which a company could achieve profitability.

E.	is a form of scatter graph used to identify specific activities or items that are creating the greatest return on investment.

210.

Suppose you are the owner of a picture frame store and you wish to calculate how many frames you must sell to cover your fixed and variable costs at a given price. Let's assume that the demand for your frames is strong, so the average price customers are willing to pay for each picture frame is $120. Also, suppose your fixed costs (FC) total $32,000 (real estate taxes, interest on a bank loan, etc.) and unit variable cost (UVC) for a picture frame is $40 (labor, glass, frame, and matting). What is the quantity of picture frames you will need to sell to break even?

A.	200 picture frames

B.	400 picture frames

C.	800 picture frames

D.	1,600 picture frames

E.	2,000 picture frames

211.

Suppose you are the owner of a picture frame store and you wish to calculate how many frames you must sell to cover your fixed and variable costs at a given price. Let's assume that the demand for your frames is strong, so the average price customers are willing to pay for each picture frame is $120. Also, suppose your fixed costs (FC) total $32,000 (real estate taxes, interest on a bank loan, etc.) and unit variable cost (UVC) for a picture frame is $40 (labor, glass, frame, and matting). If your picture frame store sold 2,000 picture frames, what would your profit (or loss) be?

A.	a loss of $32,000

B.	$0—just able to break even

C.	$32,000 profit

D.	$112,000 profit

E.	$128,000 profit

212.

Suppose you are the owner of a picture frame store and you wish to calculate how many frames you must sell to cover your fixed and variable costs at a given price. Let's assume that the demand for your frames is strong, so the average price customers are willing to pay for each picture frame is $120. Also, suppose your fixed costs (FC) total $32,000 (real estate taxes, interest on a bank loan, etc.) and unit variable cost (UVC) for a picture frame is $50 (labor, glass, frame, and matting). If your picture frame store sold 2,000 picture frames, what would your profit (or loss) be?

A.	a loss of $32,000

B.	$0—only able to break even

C.	$100,000 profit

D.	$108,000 profit

E.	$132,000 profit

213.

You are president of a manufacturer of small electric appliances. You want to reduce your break-even quantity. All things being equal, you can do this by

A.	increasing the quantity sold, while keeping price unchanged.

B.	reducing marginal revenue.

C.	reducing unit variable cost.

D.	increasing fixed cost.

E.	increasing total cost.

214.

Acme Shoe Co. sells heel replacement kits for men's shoes. It has fixed costs of $9 million and unit variable costs of $5 per pair. Acme is considering a switch from manual labor to an automated process. New equipment would cost an additional $4 million per year while lowering variable costs by $3 per shoe repair kit. How many kits would Acme have to sell at $17 per pair to make $2 million in profit in the next year with the automated process?

A.	117,648 kits

B.	428,572 kits

C.	705,883 kits

D.	916,667 kits

E.	1,000,000 kits

215.

Jane Westerlund owns a picture-framing store, The Caplow Co. The average price she receives for a framed picture is $120. This price must cover her costs for a typical framed picture, which consists of $5 for glass, $2 for matting, $13 for the frame, and $30 for the labor involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary. Assuming there is no change in price or the quantity demanded, if Westerlund wants to increase her advertising expenses to a total of $1,000 (a $500 increase), this would cause total costs to __________ and the break-even quantity to __________.

A.	decrease; stay the same

B.	increase; increase

C.	decrease; increase

D.	stay the same; increase

E.	stay the same; decrease

216.

Acme Shoe Co. sells heel replacement kits for men's shoes. It has fixed costs of $6 million and unit variable costs of $5 per kit. Acme would like to earn a profit of $2 million. How many kits must Acme sell at a price of $15?

A.	100,000 kits

B.	400,000 kits

C.	600,000 kits

D.	800,000 kits

E.	1,400,000 kits

217.

Acme Shoe Co. sells heel replacement kits for men's shoes. It has fixed costs of $6 million and unit variable costs of $5 per kit. Suppose a consultant tells Acme that it can sell 750,000 heel repair kits. What price must Acme charge to achieve a profit of $2.5 million?

$5.00

$8.33

$11.33

$16.33

$20.00

218.

A recently graduated business student decided to open a small Internet café serving a variety of unusual nonalcoholic beverages from around the world. He carefully used all the pricing formulas he learned in school and set a goal to break even the first six months and make a moderate profit for the next six months, at which time he would review his pricing strategies. Within a week after opening, every seat was filled and he had to replenish his beverage orders several times. At his six-month review, he was devastated to find that despite huge sales, he had actually lost money. He realized it wasn't his math that was wrong; he forgot to include monthly expenses such as toilet paper, paper towels, and hand soap in his calculations. These costs should have appeared as __________ in his break-even analysis.

A.	fixed costs

B.	marginal costs

C.	variable costs

D.	overhead costs

E.	sunk costs

219.

A primary reason for Washburn Guitars' success is

A.	underselling competitors by mass-producing fine-quality guitars.

B.	developing product lines at different price points for different market segments.

C.	offering significant price breaks to well-known performers in exchange for product endorsements.

D.	selling traditional American "rock 'n roll" guitars in global markets.

E.	setting up free music programs and donating low-price-point guitars to students in schools that have lost their music programs due to budget constraints.

220.

Washburn Guitars markets its guitars to four distinct market segments. The firm's one-of-kind custom instruments are targeted at

A.	first-time buyers.

B.	professional musicians.

C.	stars and collectors.

D.	large institutional buyers such as high school and collegiate band programs.

E.	intermediate-skill players who may become professional musicians.

221.

Washburn Guitars markets its guitars to four distinct market segments. The firm's batch-custom instruments are targeted at

A.	first-time buyers.

B.	professional musicians.

C.	celebrities.

D.	large institutional buyers such as band programs.

E.	intermediate-skill players who may become professional musicians.

222.

Washburn Guitars markets its guitars to four distinct market segments. The firm's mass customization instruments are targeted at

A.	first-time buyers.

B.	professional musicians.

C.	stars and famous musicians.

D.	large institutional buyers such as band programs.

E.	intermediate-skill players who may become professional musicians.

223.

Washburn Guitars markets its guitars to four distinct market segments. The firm's mass-produced instruments are targeted at

A.	first-time buyers.

B.	professional musicians.

C.	stars and famous musicians.

D.	guitar collectors and music aficionados.

E.	intermediate-skill players who may become professional musicians.

224.

The executive vice president of Washburn Guitars has set a sales target of 2,000 units for a new line of guitars. This type of objective is a __________ pricing objective.

profit

B.	target return

C.	unit volume

D.	market share

survival

225.

To reduce the price sensitivity for some of its products, Washburn Guitars

A.	uses multiple suppliers for its raw materials.

B.	offers three months of free music lessons with the purchase of each guitar.

C.	uses endorsements by internationally known musicians who play Washburn signature guitars.

D.	offers a lifetime, unconditional warranty on all its instruments regardless of the price of its guitars.

E.	sponsors free music programs and special Washburn guitar camps for children.

226.

Washburn Guitars recently purchased Parker Guitar, another guitar manufacturer that designs products for professionals and collectors, and will combine the two production facilities into a new location. Washburn expects the acquisition to reduce its rent and tax expenses by 40 percent, and the new skilled employees will reduce the hours of work needed for each unit by 15 percent. This would cause the slope of the total cost curve to __________ and the break-even quantity to __________.

A.	decrease; stay the same

B.	decrease; increase

C.	increase; increase

D.	stay the same; increase

E.	decrease; decrease

Short Answer Questions

227.	Explain the price equation in the context of a new car purchase.

228.	How do consumers use price in their assessments of value?

229.	What are the six major steps involved in setting prices?

230.	In the process of setting price, a marketer must first identify pricing objectives and constraints. Next, in Step 2, three specific estimates are necessary. What are they?

231.	What are the six broad objectives that an organization may pursue that tie in directly to its pricing policies?

232.	Step 1 of the price-setting process identifies pricing objectives and constraints. Describe the reasons these objectives may change and give examples of objectives a firm may set.

233.	Describe a profit objective used by many Japanese manufacturing firms.

234.	Describe the pricing constraints a firm is likely to face.

235.	Describe the types of competitive markets and give an example of each one.

236.	List four key factors used to estimate demand.

237.	Factors other than price affect demand. What are they and how do they work?

238.	What is the difference between a movement along a demand curve and a shift of a demand curve?

239.	Distinguish between elastic demand and inelastic demand.

240.	Price elasticity of demand measures how sensitive consumer demand and the firm's revenues are to changes in the product's price. Explain the difference between a product with elastic demand and a product with inelastic demand.

241.	What factors determine price elasticity of demand?

242.	What is the difference between fixed costs and variable costs?

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Chapter 13 Building The Price Foundation

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