Ch10 Pricing Products Understanding and Capturing Customer Value

Chapter 10 Pricing Products: Understanding and Capturing Customer Value 1) ________ is the amount of money charged for a product or service. A) Experience curve B) Demand curve C) Price D) Wage E) Salary Answer: C 2) Price is the only element in the marketing mix that produces ________. A) revenue B) variable costs C) expenses D) outfixed costs E) stability Answer: A 3) ________ is an important element in the marketing mix. It is the only element that does not represent costs. A) Current profit maximization B) Market share leadership C) Price D) Product quality leadership E) The target market Answer: C 4) Consumer perceptions of the product's value set the ________ for prices. A) demand curve B) floor C) ceiling D) variable cost E) image Answer: C 5) Product costs set a(n) ________ to a product's price. A) demand curve B) floor C) ceiling D) break-even cost E) experience curve Answer: B 6) Which of the following is a customer-oriented approach to pricing? A) value-based pricing B) sealed-bid pricing C) break-even pricing D) target profit pricing E) C and D Answer: A 7) ________ uses buyers' perceptions of what a product is worth, not the seller's cost, as the key to pricing. A) Value-based pricing B) Value-added pricing C) Variable cost D) Price elasticity E) Product image Answer: A 8) In ________, price is considered along with the other marketing mix variables before the marketing program is set. A) value-based pricing B) cost-based pricing C) variable costs D) price elasticity E) building the marketing mix Answer: A 9) Value-based pricing is the reverse process of ________. A) variable cost pricing B) cost-plus pricing C) cost-based pricing D) good-value pricing E) value-added pricing Answer: C 10) With ________, price is set to match consumers' perceptions of product value. A) variable cost pricing B) cost-plus pricing C) cost-based pricing D) value-based pricing E) every day low pricing Answer: D 11) Measuring ________ can be difficult. A company might conduct surveys or experiments to test this in the different products they offer. A) price elasticity B) the demand curve C) perceived value D) break-even pricing E) quantity supplied Answer: C Page Ref: 292 AACSB: Communication 12) Underpriced products sell very well, but they produce less revenue than they would have if price were raised to the ________ level. A) perceived B) value-based C) variable D) demand curve E) price-floor Answer: A Page Ref: 292 13) If a seller charges ________ than the buyer's perceived value, the company's sales will ________. A) more; benefit B) more; suffer C) less; increase D) less; suffer E) none of the above Answer: B Page Ref: 292 14) Some companies have adopted a ________ strategy, offering just the right combination of quality and good service at a fair price. A) value-based pricing B) good-value pricing C) cost-plus pricing D) low-price image E) none of the above Answer: B Page Ref: 293 15) Wal-Mart is famous for using what important type of value pricing? A) competition-based pricing B) everyday low pricing C) cost-plus pricing D) break-even pricing E) penetration pricing Answer: B Page Ref: 293 16) ________ involves charging a constant, everyday low price with few or no temporary price discounts. A) High-low pricing B) Target pricing C) Cost-plus pricing D) EDLP E) Penetration pricing Answer: D Page Ref: 293 17) ________ involves attaching features and services to differentiate a company's offers and to support charging higher prices.. A) Break-even pricing B) Target pricing C) Value-added pricing D) Cost-plus pricing E) Pricing-down Answer: C Page Ref: 293 18) ________ is a company's power to escape price competition and to justify higher prices and margins. A) Variable cost B) Pricing power C) Target cost D) Fixed cost E) Unit cost Answer: B Page Ref: 293 19) To maintain and increase a company's ________, a firm must retain or build the value of its marketing offer. A) variable cost B) pricing power C) target cost D) fixed cost E) image Answer: B Page Ref: 293 20) When there is price competition, many companies adopt ________ rather than cutting prices to match competitors. A) pricing power B) value-added strategies C) fixed costs D) price elasticity E) image pricing Answer: B Page Ref: 293 21) Ryanair offers free flights to a quarter of its customers and rock-bottom prices to many of its other customers. Ryanair then charges for all extra services, such as baggage handling and in-flight refreshments. Which of the following best describes Ryanair's pricing method? A) value-added pricing B) low-cost pricing C) cost-plus pricing D) high-low pricing E) image pricing Answer: B Page Ref: 295 22) ________ pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for the company's efforts and risks. A) Value-based B) Fixed cost C) Cost-based D) Variable E) Skimming Answer: C Page Ref: 295 23) Fixed costs ________ as the number of units produced increases. A) decrease B) increase C) divide in half D) remain the same E) increase at a diminishing rate Answer: D Page Ref: 295 24) Costs that do not vary with production or sales level are referred to as ________. A) fixed costs B) variable costs C) target costs D) total costs E) unit costs Answer: A Page Ref: 295 25) Rent, electricity and executive salaries are examples of ________. A) fixed costs B) variable costs C) accumulated costs D) total costs E) marketing costs Answer: A Page Ref: 295 26) Costs that vary directly with the level of production are referred to as ________. A) fixed costs B) variable costs C) target costs D) total costs E) unit costs Answer: B Page Ref: 296 27) ________ are the sum of the ________ and ________ for any given level of production. A) Fixed costs; variable; total costs B) Fixed costs; total; variable costs C) Variable costs; fixed; total costs D) Total costs; fixed; variable costs E) Break-even costs; fixed; total costs Answer: D Page Ref: 296 28) SRAC is the acronym for which concept related to costs at different levels of production? A) strategic reasoning and costs B) short-run accounting costs C) short-run average cost D) strategic rights and company E) strategic revenues and costs Answer: C Page Ref: 296 29) As production workers become better organized and more familiar with equipment, the average cost per unit decreases. This is called the ________. A) demand curve B) experience curve C) short-run average cost curve D) long-run average cost curve E) marginal utility Answer: B Page Ref: 296 30) With a higher volume of product, most companies can expect to ________. A) gain economies of scale B) become less efficient C) see average costs increase D) have a straight, horizontal learning curve E) find competitors using the experience curve strategically Answer: A Page Ref: 296 31) The experience curve reveals that ________. A) repetition in production lowers costs B) repetition in production enhances efficiency C) the average cost drops with accumulated production experience D) A, B, and C E) none of the above Answer: D Page Ref: 296 32) When a downward-sloping experience curve exists, a company should usually ________ the selling price of that product in order to bring in higher revenues. A) increase B) greatly increase C) decrease D) not alter E) none of the above Answer: C Page Ref: 297 33) Which of the following is a risk a company takes when building a strategy around the experience curve? A) Competitors will likely not be able to meet the company's price cuts. B) Existing technologies are likely to become more expensive as the company expands. C) The method does not take competitors' prices into account. D) The method may cause consumers to become frustrated with changing prices. E) Aggressive pricing may give the product a cheap image, causing customers to lose interest. Answer: E Page Ref: 297 34) A company building its pricing strategy around the experience curve would be likely to ________. A) price its products low B) price its products high C) engage in break-even pricing D) all of the above E) none of the above Answer: A Page Ref: 297 35) The company designs what it considers to be a good product, totals the expenses of making the product, and sets a price that adds a standard mark-up to the cost of the product. This approach to pricing is called ________. A) value-based pricing B) fixed cost pricing C) cost-plus pricing D) variable pricing E) skimming pricing Answer: C Page Ref: 297 36) Lawyers, accountants, and other professionals typically price by adding a standard markup for profit. This is known as ________. A) variable costs B) cost-plus pricing C) value-based pricing D) break-even price E) penetration pricing Answer: B Page Ref: 297 37) The simplest pricing method is ________. A) value-based pricing B) going-rate and sealed-bid pricing C) cost-plus pricing D) break-even analysis E) target profit pricing Answer: C Page Ref: 297 38) Which of the following is a reason why markup pricing is NOT practical? A) Sellers earn a fair return on their investment. B) By tying the price to cost, sellers simplify pricing. C) When all firms in the industry use this pricing method, prices tend to be similar. D) This method ignores demand. E) With a standard markup, consumers know when they are being overcharged. Answer: D Page Ref: 298 39) One reason ________ remains popular is that sellers are more certain about costs than about demand. A) markup pricing B) variable pricing C) inelasticity pricing D) elasticity pricing E) penetration pricing Answer: A Page Ref: 298 40) Price competition is minimized when all firms in an industry use which pricing method? A) variable pricing B) markup pricing C) elasticity pricing D) value-added pricing E) value-based pricing Answer: B Page Ref: 298 41) Many people feel that ________ pricing is fairer to both buyers and sellers. Sellers earn a fair return on their investment but do not take advantage of buyers when buyers' demand becomes great. A) variable B) markup C) elasticity D) inelasticity E) penetration Answer: B Page Ref: 298 AACSB: Ethical Reasoning 42) Which of the following is a cost-based approach to pricing? A) value-based pricing B) going-rate pricing C) target profit pricing D) good value pricing E) A and C Answer: C Page Ref: 298 43) Break-even pricing, or a variation called ________, is when the firm tries to determine the price at which it will break even or make the profit it is seeking. A) competition-based pricing B) target profit pricing C) fixed cost pricing D) value-based pricing E) customer-based pricing Answer: B Page Ref: 298 44) Target profit pricing uses the concept of a ________, which shows the total cost and total revenue expected at different sales volume levels. A) value-based chart B) break-even chart C) competition-based chart D) demand-curve E) unit cost Answer: B Page Ref: 298 45) The break-even volume is the point at which ________. A) the total revenue and total costs lines intersect B) demand equals supply C) the production of one more unit will not increase profit D) the company can pay all of its long-term debt E) a firm's profit goal is reached Answer: A Page Ref: 298 46) ________ pricing works only if that price actually brings in the expected level of sales. A) Elasticity B) Markup C) Variable D) Inelasticity E) Target profit Answer: E Page Ref: 298 47) Which of the following statements about break-even analysis is true? A) It is used to determine how much production experience a company must have to achieve desired efficiencies. B) It is a technique used to calculate fixed costs. C) It determines the amount of retained earnings a company will have during an accounting period. D) It is a technique marketers use to examine the relationship between supply and demand. E) It is calculated using variable costs, the unit price, and fixed costs. Answer: E Page Ref: 298 48) As a manufacturer increases price, the ________ drops. A) target B) break-even volume C) cost-plus pricing D) total cost E) sales Answer: B Page Ref: 299 49) Which of the following is an external factor that affects pricing decisions? A) the salaries of production management B) competition C) the salaries of finance management D) funds expensed to clean production equipment E) A, B, and C Answer: B Page Ref: 299 50) ________ that influence pricing decisions include the nature of the market and demand and competitors' prices. A) Internal factors B) Elasticity factors C) External factors D) Target factors E) Domestic factors Answer: C Page Ref: 299 51) Companies may set prices low for which of the following reasons EXCEPT ________. A) to prevent competition from entering the market B) to stabilize the market C) to create excitement for a product D) to prepare for an easy exit from a market E) to match a competitor Answer: D Page Ref: 299 52) In order to form a consistent and effective integrated marketing program, price decisions should be coordinated with each of the following EXCEPT ________. A) product design B) distribution C) competitors' prices D) promotion decisions E) marketing objectives Answer: C Page Ref: 299 53) With target costing, marketers will first ________ and then ________. A) build the marketing mix; identify the target market B) identify the target market; build the marketing mix C) design the product; determine its cost D) use skimming pricing; penetrating pricing E) determine a selling price; target costs to ensure that the price is met Answer: E Page Ref: 300 54) Price setting is usually determined by ________ in small companies. A) top management B) marketing departments C) sales departments D) divisional managers E) cross-functional teams Answer: A Page Ref: 300 55) Price setting is usually determined by ________ in large companies. A) top management B) divisional managers C) product line managers D) pricing departments E) both B and C Answer: E Page Ref: 300 56) In industrial markets, ________ typically has the final say in setting the pricing objectives and policies of a company. A) the sales manager B) top management C) the production manager D) the finance manager E) the pricing department Answer: B Page Ref: 300 57) In industries in which pricing is a key factor, ________ often set the best prices or help others in setting them. A) sales managers B) top managers C) production managers D) finance managers E) pricing departments Answer: E Page Ref: 300 58) Under ________, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) anti-trust agreements Answer: A Page Ref: 302 59) Under ________, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A) pure competition B) monopolistic competition C) oligopolistic competition D) pure monopoly E) socialism Answer: B Page Ref: 302 60) Under ________, the market consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies. A) pure competition B) monopolistic competition C) oligopolistic competition D) pure monopoly E) capitalism Answer: C Page Ref: 302 61) Nonregulated monopolies are free to price at what the market will bear. However, they do not always charge the full price for a number of reasons. What is NOT one of those reasons? A) They don't want to attract competition. B) They want to penetrate the market faster with a low price. C) They have a fear of government regulation. D) They want to encourage government regulations. E) They want to please a large group of consumers. Answer: D Page Ref: 303 62) The relationship between the price charged and the resulting demand level can be shown as the ________. A) demand curve B) variable cost C) target cost D) break-even pricing E) experience curve Answer: A Page Ref: 303 63) Consumers usually perceive higher-priced products as ________. A) out of reach for most people B) having high quality C) having high profit margins D) having cost-based prices E) being in the introductory stage of the product life cycle Answer: B Page Ref: 303 64) Why do marketers consider prestige goods to be an exception to the typical demand curve? A) The demand curve for prestige goods slopes downward and to the right. B) Increasing the price of prestige goods can make them seem more desirable. C) Demand for prestige goods often is greater than supply. D) Prestige products such as diamonds, sapphires, and emeralds are nonrenewable resources. E) Customers are more aware of any price changes to prestige goods. Answer: B Page Ref: 303 65) Which of the following is true about the demand curve? A) It is used to illustrate the effect of price on the quantity supplied. B) It is always graphically depicted by a straight line. C) It shows the quantity of product customers will buy in a market during a period of time even if other factors change. D) It usually slopes upward and to the right. E) It shows the relationship between product demand and product price. Answer: E Page Ref: 303 66) When Gibson Guitar Corporation, long known for its high quality instruments, lowered its prices to compete more effectively with Japanese rivals, the company sold fewer guitars. Which of the following best explains this? A) The Gibson guitars were not as well made as the Japanese guitars. B) The market was already flooded with guitars. C) The sound of the Gibson guitar was not as good as the Japanese guitars. D) Customers did not distinguish the superiority of the Gibson guitar when it was at a lower price. E) Customers had come to expect a higher price for a Gibson guitar. Answer: D Page Ref: 303 67) ________ describes how responsive demand will be to a change in price. A) Price elasticity B) Break-even pricing C) The demand curve D) Target costing E) Supply Answer: A Page Ref: 304 68) If demand hardly changes with a small change in price, we say the demand is ________. A) variable B) inelastic C) value-based D) at break-even pricing E) market penetrating Answer: B Page Ref: 304 69) If demand changes greatly with a small change in price, we say the demand is ________. A) variable B) inelastic C) value-based D) elastic E) fixed Answer: D Page Ref: 304 70) Price elasticity of demand is ________ divided by ________. A) percent change in quantity demanded; percent change in price B) demand; price C) percent change in price; percent change in quantity demanded D) the going price; the asking price E) none of the above Answer: A Page Ref: 304 71) Buyers are less price sensitive in all of the following situations EXCEPT ________. A) when the product they are buying is unique B) when the product they are buying is in high demand C) when substitute products are hard to find D) when the total expenditure for a product is high relative to their income E) when the product is a specialty product Answer: D Page Ref: 304 72) The less ________ the demand, the ________ it pays for the seller to raise the price. A) determined; less B) elastic; more C) elastic; less D) constant; more E) none of the above Answer: B Page Ref: 304 73) Each of the following economic factors can have a strong impact on a firm's pricing strategy EXCEPT ________. A) an economic boom B) the reseller's reaction to price changes C) an economic recession D) inflation E) interest rates Answer: B Page Ref: 305 74) A company should set prices that will allow ________ to receive a fair profit. A) resellers B) producers C) consumers D) the elderly E) competitors Answer: A Page Ref: 305 75) When companies set prices, the government and social concerns are two ________ affecting pricing decisions. A) external factors B) internal factors C) economic conditions D) demand curves E) temporary influences Answer: A Page Ref: 305 76) Amos Zook, an Amish farmer, sells organically grown produce. Often he will trade some of his produce for dairy products produced by other Amish farmers. The sum of the values that others exchange is called a ________. A) price B) cost-plus price C) dynamic price D) common value price E) penetration price Answer: A AACSB: Reflective Thinking 77) Trader Joe's offers an assortment of exclusive gourmet products at impossibly low prices. These prices are not limited-time offers or special discounts. Instead, they reflect Trader Joe's ________ strategy. A) everyday low pricing B) cost-plus pricing C) dynamic pricing D) value-based pricing E) cost-based pricing Answer: A Page Ref: 293 AACSB: Reflective Thinking 78) Jimmy's Hardware, an independent local retailer, is losing business to Wal-Mart. This is most likely because he cannot match Wal-Mart's pricing strategy of ________. A) EDLP B) EFGF C) fixed prices D) negotiated pricing E) skimming pricing Answer: A Page Ref: 293 79) When McDonald's and other fast food restaurants offer "value menu" items at surprisingly low prices, they are using ________. A) break-even pricing B) target profit pricing C) value pricing D) cost-plus pricing E) bundling Answer: C Page Ref: 293 80) Consumers who have less time and patience for watching for supermarket specials and clipping coupons would most likely prefer ________. A) variable pricing B) high-low pricing C) EDLP D) break-even pricing E) value-based pricing Answer: C Page Ref: 293 81) Xbox 360 decides to add a free subscription to XBOX magazine with every game bought in an effort to differentiate its offering from PS3 games. This is an example of ________. A) good-value pricing B) add-on pricing C) product-support pricing D) value-added pricing E) cost-based pricing Answer: D Page Ref: 293 AACSB: Reflective Thinking 82) The long-run average cost curve (LRAC) helps the producer understand which of the following? A) It shows how large a business should be, to be most efficient. B) It deals mainly with competitors' prices. C) It deals mainly with external factors. D) all of the above E) none of the above Answer: A Page Ref: 296 83) Assume a manufacturer with fixed costs of $100,000, a variable cost of $10, and expected sales of 50,000 units wants to earn a 20-percent markup on sales. What is the manufacturer's markup price? A) $14 B) $15 C) $18 D) $18.50 E) none of the above Answer: B Page Ref: 297 84) General Motors prices its automobiles to achieve a 15 to 20 percent profit on its investment. This approach is called ________. A) value-based pricing B) going-rate pricing C) cost-plus pricing D) low-price image E) target-profit pricing Answer: E Page Ref: 298 AACSB: Reflective Thinking 85) A company faces fixed costs of $100,000 and variable costs of $8.00/unit. They plan to directly sell their product to the market for $12.00. How many units must they produce and sell to break even? A) 20,000 B) 25,000 C) 40,000 D) 50,000 E) not enough information to calculate Answer: B Page Ref: 298 86) Ecstasy Pharmaceuticals faces fixed costs with their new drug of $1,000,000. The company sells the drug in bottles of 50 pills for $10.00. They estimate that they must sell 200,000 bottles to break even. What is the total cost to produce a bottle of 50 pills? A) $2.50 B) $5.00 C) $6.00 D) $7.50 E) not enough information to calculate Answer: B Page Ref: 298 87) A manufacturer is trying to determine its break-even volume. With fixed costs of $100,000, a variable cost of $10, and expected sales of 50,000 units, what should the manufacturer's unit cost be to break even? A) $10 B) $12 C) $16 D) $20 E) none of the above Answer: B Page Ref: 298 88) As a manufacturer decreases price, ________ volume increases. A) target B) break-even C) cost-plus pricing D) total cost E) sales Answer: B Page Ref: 299 89) P&G surveyed the market and identified an unserved segment of electric toothbrush market. Using these results, they created Spinbrush. The unorthodox order of this marketing mix decision is an example of ________. A) competition-based pricing B) cost-plus pricing C) target costing D) value-based pricing E) penetration pricing Answer: C Page Ref: 300 AACSB: Reflective Thinking 90) PoolPak produces climate-control systems for large swimming pools. The company's customers are more concerned about service support for maintaining a system than its initial price. PoolPak may use this knowledge to become more competitive through ________. A) target costing B) value pricing C) cost-plus pricing D) a nonprice position E) skimming pricing Answer: D Page Ref: 300 AACSB: Reflective Thinking 91) By pledging to be a leader in providing clean, renewable energy sources and developing products and services that help consumers protect the environment, Green Mountain Power competes successfully against "cheaper" brands that focus on more price-sensitive consumers.Green Mountain Power has the firm belief that even kilowatt-hours can be ________. A) cost-plus priced B) a demand curve C) differentiated D) value-based priced E) none of the above Answer: C Page Ref: 300 92) In Vin del Mar, Chile, there are a dozen stores specializing in selling the same quality of seafood products on one street. An individual store dare not charge more than the going price without the risk of losing business to the other stores that are selling the fish at a common price. This is an example of what type of market? A) pure competition B) monopolistic competition C) oligopolistic competition D) pure monopoly E) socialist Answer: A Page Ref: 302 AACSB: Reflective Thinking 93) Ascot Tires has decided to decrease its prices. The company can expect that ________ for their product will increase. A) cost-plus pricing B) value-based pricing C) demand D) the experience curve E) competition Answer: C Page Ref: 303 AACSB: Reflective Thinking 94) If Canon Camera Company follows a high-price, high-margin strategy, what will competitors such as Nikon, Minolta, and Pentax most likely do? A) They will go out of business. B) They will want to compete against Canon. C) They will advertise less. D) They will bundle their products. E) none of the above Answer: B Page Ref: 304 95) If Canon Camera Company follows a low-price, low-margin strategy for a product, what will competitors most likely do? A) They will not be able to compete or may leave the market. B) They will want to compete against Canon. C) They will advertise less. D) They will advertise more. E) none of the above Answer: A Page Ref: 304 96) Companies are fortunate to have demand that is more ________ because they may be able to set higher prices. A) elastic B) external C) internal D) inelastic E) fixed Answer: D Page Ref: 304 97) If demand falls by 1 percent when price is increased by 2 percent, then ________. A) elasticity is —1/2 B) demand is inelastic C) demand is elastic D) buyers are not price sensitive E) A and B Answer: E Page Ref: 304 Refer to the scenario below to answer the following questions. Alden Manufacturing produces small kitchen appliances?blenders, hand mixers, and electric skillets?under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand. In considering that most young households have limited financial resources, Alden has attempted to engage in target costing. "In doing this," Milt Alden stated, "we have better control over keeping price right in line with customers." Alden manufactures a three-speed blender, its top seller, and a five-speed blender. The hand mixers are manufactured in two styles?a small hand-held mixer with two rotating beaters and a similar style that comes with an optional stand and attached mixing bowl. Alden's temperature-controlled skillets are manufactured in one style with three color options. "Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low." 98) Milt Alden says that his line workers "know each product like the back of their hands," and that this knowledge helps the company keep its prices low. This indicates that Alden Manufacturing most likely uses which of the following strategies? A) cost-plus pricing B) value-based pricing C) the experience curve D) cost-based pricing E) target profit pricing Answer: C Page Ref: 296 99) Milt Alden uses a target costing strategy. Which of the following is he most likely to do in executing this strategy? A) base his price on competitors' prices B) use everyday low pricing C) use a break-even chart to determine pricing D) start with customer-value considerations E) start by determining the costs of a new product Answer: D Page Ref: 300 100) If Alden raises the price on the handheld mixer by 2 percent and quantity demanded falls by 10 percent what is the price elasticity of demand? A) —5 B) —8 C) —12 D) 5 E) 12 Answer: A Page Ref: 304 101) When faced with price competition cutting prices is often not the best answer. Answer: TRUE Page Ref: 293 102) Prices have a direct impact on a company's bottom line. Answer: TRUE 103) Demand and consumer value perceptions set the floor for prices. Answer: FALSE 104) Product costs set a floor to the price; consumer perceptions of the product's value set the ceiling. Answer: TRUE 105) Value-based pricing is being used when costs vary directly with the level of product. Answer: FALSE 106) Value-based pricing uses the company's perception of value. Answer: FALSE 107) Value-based pricing is the reverse of cost-based pricing. Answer: TRUE 108) Using value-based pricing, a marketer would not design a product and marketing program before setting the price. Answer: TRUE 109) EDLP is very similar to high-low pricing. Answer: TRUE Page Ref: 293 110) Overhead cost is another term for fixed cost. Answer: TRUE Page Ref: 295 111) Cost-based pricing relies on consumer perception of value to drive pricing. Answer: FALSE Page Ref: 295 112) Average unit cost increases with accumulated production experience. Answer: FALSE Page Ref: 296 113) An upward-sloping experience curve is beneficial for a company. Answer: FALSE Page Ref: 297 114) The simplest pricing method is cost-plus pricing, which involves adding a standard markup to the cost of the product. Answer: TRUE Page Ref: 297 115) Markup pricing is popular because prices tend to be similar and price competition is thus minimized. Answer: TRUE Page Ref: 298 116) Target profit pricing is used when a firm tries to determine the price at which it will break even or make the profit it is seeking. Answer: TRUE Page Ref: 298 117) A break-even chart shows the total cost and total revenue expected at various sales volume levels. Answer: TRUE Page Ref: 298 118) Environmental elements are categorized as external factors that affect pricing decisions. Answer: TRUE Page Ref: 299 119) In a pure monopoly, the market consists of one seller. Answer: TRUE Page Ref: 303 120) Nonregulated monopolies always charge the full price because they do not fear attracting competition. Answer: FALSE Page Ref: 303 121) Marketers may learn a few simple rules that apply equally to all price-demand relationships. Answer: FALSE Page Ref: 303 122) The demand curve shows the number of units the market will buy in a given time period at different prices that might be charged. In normal cases, the higher the price, the lower the demand. Answer: TRUE Page Ref: 303 123) If demand changes greatly with price, we say the demand is inelastic. Answer: FALSE Page Ref: 304 124) The more elastic the demand, the more it pays for the seller to raise the price. Answer: FALSE Page Ref: 304 125) Consumers will base their judgments of a product's value on the prices that competitors charge for similar products. Answer: TRUE Page Ref: 304 126) Pricing and price competition account for the number-one problem facing many marketing executives. What are some of the frequent problems that companies encounter? Answer: The pricing environment changes at a fast pace, and value-seeking customers have put increased pricing pressure on many companies. However, companies are often too quick to reduce prices in order to get a sale rather than convincing buyers that their products are worth a higher price. A company's pricing, in addition, is often too cost-oriented rather than customer-value oriented. Companies have prices that are not revised often enough to reflect market changes. Another common problem is pricing that does not take the rest of the marketing mix into account. Page Ref: 289 127) Discuss the importance of consumer perceptions of value and costs to setting prices. Answer: Customer perceptions of value set the upper limit for prices, and costs set the lower limit. However, in setting prices within these limits the company must then consider other internal and external factors. Internal factors affecting pricing include the company's overall marketing strategy, objectives, and marketing mix, as well as other organizational considerations. External factors include the nature of the market and demand, competitors' strategies and prices, and other environmental factors. 128) Explain how break-even analysis can be used for target profit pricing. Answer: The firm determines the price at which it will break even. The firm can also add the target profit to the fixed costs and then determine the new, "break-even point," which now includes the target profit. Pricing decisions can be made by examining where the total revenue and total cost curves intersect on a break-even chart at different price points and sales volume. Page Ref: 298 129) Identify and define the internal factors affecting a firm's pricing decisions. Answer: The pricing strategy is largely determined by the company's target market and positioning objectives. Pricing decisions affect and are affected by product design, distribution, and promotion decisions. Costs set the floor for the company's price, which must cover all the costs of making and selling the product, plus a fair rate of return. In order to coordinate pricing goals and decisions, management must decide who within the organization is responsible for setting price. Page Ref: 299 130) Compare pure competition with oligopolistic competition. Answer: Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. Under oligopolistic competition, the market consists of few sellers who are highly sensitive to each other's pricing and marketing strategies. The product can be uniform or nonuniform. There are few sellers because it is difficult for new sellers to enter the market. Each seller is alert to competitors' strategies and moves. Page Ref: 302-303 131) Compare oligopolistic competition with a pure monopoly. Answer: Under oligopolistic competition, the market consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies. There are few sellers because it is difficult for new sellers to enter the market. Under a pure monopoly, the market consists of one seller. Pricing is handled differently in each case. The seller may be a government monopoly, a private nonregulated monopoly, or a private regulated monopoly. Page Ref: 302-303 132) Describe what a demand curve is and explain how it helps businesses. Answer: It estimates consumer demand at different prices. In a monopoly, the demand curve shows the total market demand resulting from different prices. If the company faces competition, its demand at different prices will depend on whether competitors' prices stay constant or change with the company's own prices. Page Ref: 303 133) What does price elasticity reveal about a product? Answer: Price elasticity is a measure of the sensitivity of demand to changes in price. If demand hardly changes with a small change in price, we say the demand is inelastic. If demand changes greatly, we say the demand is elastic. Page Ref: 304 134) The company must consider the impact its prices will have on resellers. Identify three ways the company can help resellers. Answer: The company, first of all, should set prices that give resellers a fair profit. The company should also encourage their support. Finally, the company should help resellers to sell the product effectively. Page Ref: 305 135) When setting prices, the company must consider its external environment. Describe four parts of the external environment and how they affect businesses. Answer: Economic conditions affect both the costs of producing a product and consumer perceptions of the product's price and value. The company should encourage and support resellers and help them to sell the product effectively. The government, in the form of local, state, and federal laws, is another important influence on pricing decisions. Social concerns impact pricing, especially when a company's short-term sales, market share, and profit goals may have to be tempered by broader societal considerations. Page Ref: 305 136) How important is price among the elements of the marketing mix? Answer: In recent decades, nonprice factors have gained increasing importance. However, price still remains one of the most important elements determining a firm's market share and profitability. 137) Why is price considered to be one of the most flexible elements of the marketing mix? Answer: Price can be changed quickly. 138) Explain the concept of a price floor. Answer: A price floor is the lowest price charged at which the company still earns some profits. 139) Explain the concept of a price ceiling. Answer: A price ceiling is the highest price charged at which there is still some consumer demand. 140) What must a company using value-based pricing find out about its customers? Answer: They must determine the specific value that individual buyers assign to different competitive offers. Page Ref: 292 141) Explain good-value pricing. Answer: With good-value pricing, a marketer offers just the right combination of quality and good service at a fair price. Page Ref: 293 142) What must a firm do to retain pricing power? Answer: To retain pricing power, a firm must retain of build the value of its market offering. Page Ref: 293 143) What costs make up a product's total cost? Answer: Fixed costs and variable costs make up total cost. Page Ref: 296 144) Explain the significance of a downward-sloping experience curve. Answer: Not only will the company's unit production cost fall, but it will fall faster if the company makes and sells more during a given time period. Page Ref: 297 145) A marketer's fixed costs are $400,000, the variable cost is $16, and they expect the product to sell for $24. What is their break-even point in units? Answer: The break-even point in units is 50,000 units. Page Ref: 298 146) A marketer's fixed costs are $400,000, the variable cost is $16, and they expect the product to sell for $24. What is their break-even point in dollar sales? Answer: The break-even point in dollar sales is $1,200,000. Page Ref: 298 147) A marketer's fixed costs are $400,000, the variable cost is $16, and they expect their product to sell for $24. If the marketer has sales of $1,440,000, what is their profit on this product? Answer: The profit is $80,000. Page Ref: 298 148) Who typically sets prices in small companies? In large companies? Answer: Top management sets prices in small companies, whereas divisional or product line managers typically set prices in large companies. Page Ref: 300 149) Explain a pure monopoly. Answer: The market consists of one seller that dominates the market. Page Ref: 303 150) If demand is elastic, will sellers consider lowering their prices? Explain. Answer: Yes. A lower price will produce more needed revenue, as consumers will respond to the change in price and buy more. Page Ref: 304