Ch. 14 MAR 3023

Price is the cash expenditure plus taxes that consumers have to pay for a good or service.
True False

False

The key to successful pricing is to match the product with the consumer's perception of value.
True False

True

Price is the only part of the marketing mix that does not generate costs.
True False

True

If Brandon buys hats for his store for $5 each and sells them for $15 each, he is using a keystoning
pricing strategy.
True False

False

Rarely is the lowest-price product offering the dominant brand in a given market.
True False

True

A demand curve shows the relationship between income and demand.
True False

False

Because consumers are generally more sensitive to price increases than to price decreases, it is easier to
lose current customers with a price increase than it is to gain new customers with a price decrease.
True False

True

Brands that have developed loyal customers have a higher price elasticity of demand.
True False

False

In U.S. markets, there are many substitute products for Fruit Loops cereal, suggesting the price elasticity
of demand for Fruit Loops is high.
True False

True

In general, prices should not be based on costs because consumers make their purchase decisions based
on perceived value, not the cost of production.
True False

True

At the break-even point, profits are maximized.
True False

False

In addition to the product-specific and firm-specific factors that affect pricing, there are two broader
factors: the Internet and sociocultural factors.
True False

False

A gray market employs irregular but not necessarily illegal methods of distributing products.
True False

True

Economic trends that affect pricing decisions include increases in disposable income and status
consciousness, a trend for customers to shop cheap, global economic conditions, and local economic
conditions.
True False

True

The Internet has decreased consumers' price sensitivity.
True False

False

Diana owns a boutique specializing in ball gowns. Sales are stable and Diana feels it is time she had a 20
percent increase in her salary. If Diana takes this increase in compensation, it will decrease the breakeven
quantity of gowns she needs to sell on a monthly basis.
True False

False

If a firm is engaged in monopolistic competition, it should seek a way to differentiate itself.
True False

True

Firm A has set very low prices for its products in an attempt to drive its competitor, Firm B, out of
business. This is known as monopolistic pricing.
True False

False

Price is the _____________ a consumer is willing to make to acquire a specific product or service.
A. amount of money
B. overall sacrifice
C. fixed cost
D. target return
E. variable cost

B. overall sacrifice

Earl was known for driving 30 miles to save a dollar on the price for his favorite beverage. Earl perceived
price as ________________, while most consumers recognize price as the ______________ made to
acquire a good or service.
A. money paid; overall sacrifice
B. variable cost; fixed cost
C. fixed cost; variable payment
D. overall sacrifice; monetary payment
E. break-even amount; price elasticity

A. money paid; overall sacrifice

The full price of a product or service includes all of the following EXCEPT
A. taxes.
B. shipping.
C. travel costs.
D. the price of alternative products and services.
E. value of the consumer's time.

D. the price of alternative products and services.

Consumers judge the benefits the product delivers against the ____________ necessary to obtain it.
A. monetary cost
B. profit
C. variable cost
D. total return
E. sacrifice

E. sacrifice

Dean runs a woodworking business specializing in kitchen cabinets. He knows there are other firms with
top-of-the-line machinery that make better quality cabinets, but he does well and has a constant flow of
business. Dean obviously has
A. figured out how to produce cheap products.
B. priced his products well.
C. reduced his variable costs by investing in fixed costs.
D. avoided monopolistic competition, and is instead in a market with pure competition.
E. learned how to use status quo pricing.

B. priced his products well.

If firms price their products too low, it may
A. result in lower costs.
B. create a premium pricing effect.
C. increase contribution per unit.
D. result in inelastic demand.
E. signal poor quality.

E. signal poor quality.

Gerald has a number of customers for his lawn care service who never question his bill but expect their
lawns to be perfect. These customers do not want low prices, they want
A. a sales orientation.
B. fixed costs.
C. cross-price discounts.
D. a target return.
E. high value.

E. high value.

Marketers can deliver high value through high or low prices, depending on
A. profit contribution per unit.
B. the bundle of benefits the product or service delivers.
C. monopolistic competition.
D. target return pricing that is greater than variable cost per unit.
E. the income effect.

B. the bundle of benefits the product or service delivers.

Unlike product, promotion, or place, price is the only part of the marketing mix
A. that offers the opportunity for an oligopoly.
B. that is subject to gray market manipulation.
C. that leads to competition.
D. that generates revenue.
E. that is determined by the consumer

D. that generates revenue.

Price is often the most challenging of the four Ps to manage, partly because it is often
___________________________ in developing marketing strategies.
A. the least important aspect
B. treated as an afterthought
C. calculated by senior consultants
D. difficult to calculate markups
E. the subject of cross-shopping differentiation

B. treated as an afterthought

Historically, prices were
A. the center of attention in almost all marketing strategies.
B. analyzed and changed constantly.
C. calculated to minimize contribution per unit.
D. allowed to vary seasonally as cross-shopping tendencies fluctuated.
E. rarely changed except in response to radical shifts in market conditions.

E. rarely changed except in response to radical shifts in market conditions.

Chet knows the pro shops selling his golf photography will "keystone" his products. He also knows sales
will decline significantly if the retail price is greater than $200. The maximum wholesale price Chet can
charge is
A. $200.
B. $100.
C. $50.
D. $10.
E. It cannot be determined from this information.

B. $100.

Using "keystoning" as a pricing strategy
A. creates undue complexity for retailers.
B. avoids having to participate in pure competition.
C. ignores consumers' sensitivity to changes in prices.
D. allows marketers to estimate the substitution effect.
E. maximizes the difference between total cost and total variable cost

C. ignores consumers' sensitivity to changes in prices.

Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as a gift for the
host. Since she does not know much about wine, she will likely use the price of the wines as
A. an indicator of quality.
B. a reflection of status quo pricing.
C. an indicator of the variety.
D. a measure of scarcity.
E. a measure of the income effect.

A. an indicator of quality.

Which of the following is NOT one of the Five Cs of pricing?
A. Customers.
B. Channel members.
C. Cost.
D. Collaboration.
E. Company objectives.

D. Collaboration.

Patricia and D'Wayne were working on pricing their line of handcrafted office furniture. D'Wayne
said, "I think we've got all the main components that affect us and our products, but let's go over the
list once again. We've got the stores that will carry our products, our firm's objectives, how customers
will respond, and the costs." Which of the following is missing from Patricia and D'Wayne's list of the
components?
A. The message and media for the advertising campaign.
B. The competition's pricing strategies.
C. The designs for products that haven't yet been manufactured.
D. The number of new employees they'll need if the products take off.
E. Whether or not their suppliers use sustainable raw materials.

B. The competition's pricing strategies.

Tess is the marketing manager for a fast food restaurant chain. She uses a target return pricing strategy
because her firm's primary objective is to
A. increase profits.
B. increase sales.
C. decrease competition.
D. build customer satisfaction.
E. broaden the product line.

A. increase profits.

Gary is the marketing manager for an automobile dealership. His boss tells him the firm's primary goal is
to increase their local market share from 15 to 30 percent. Gary's pricing strategy will focus on
A. increasing profits.
B. increasing sales.
C. decreasing competition.
D. building customer satisfaction.
E. product development.

B. increasing sales.

Bernard's firm has set corporate direction to become one of the leaders in each of its significant market
segments. It was Bernard's job to examine the pricing to determine how to maximize market share, even
at the expense of profits in the short run. What kind of company objective would guide Bernard's effort?
A. Industry-oriented
B. Sales-oriented
C. Competitor-oriented
D. Innovation-oriented
E. Customer-oriented

B. Sales-oriented

Naomi tells her sales representatives the goal is to generate at least a 20 percent return on investment for
all of the industrial building supplies they sell. Naomi is using a _______________ pricing strategy.
A. sales orientation
B. target profit
C. target return
D. status quo
E. competitive parity

C. target return

A _________________ strategy involves accurately measuring all the factors needed to predict sales and
profits at various price levels, so that the price level that produces the highest return can be chosen.
A. sales orientation
B. target profit
C. target return
D. status quo
E. maximizing profits

E. maximizing profits

Health clubs often use a low, introductory offer price to get people to join their club. These low prices
represent a ______________ pricing strategy.
A. maximizing profits
B. target profit
C. target return
D. status quo
E. sales orientation

E. sales orientation

Many years ago Honda's Accord and Ford's Taurus were the top two selling cars in the United States. As
the year was coming to an end, Ford cut the price of the Taurus, hoping to outsell the Accord and allow
Ford to claim that "Taurus is the best-selling car in America." Ford was using a ___________________
pricing strategy.
A. maximizing profits
B. target profit
C. sales orientation
D. status quo
E. target return

C. sales orientation

Julia wants her firm's gourmet snacks to be the leading brand in the U.S. market. When adopting a pricing
strategy designed to gain market share, she should remember that
A. rarely is the lowest-price offering the dominant brand in a market.
B. prestige products need to be competitively priced.
C. companies can gain market share by offering low-quality products at a high price.
D. total value equals total cost minus variable costs leading to price escalation.
E. price wars are the way to become the dominant brand.

A. rarely is the lowest-price offering the dominant brand in a market.

Sharon knew that her established customers liked her product much better than the competitors. She was
planning to expand into new markets, and she was considering pricing. She was leaning toward charging
a higher price than competitors to help demonstrate that hers was a high-quality product. Sharon was
considering
A. a top of market strategy.
B. the value of quality.
C. advantageous pricing.
D. premium pricing.
E. differential pricing

D. premium pricing.

When Ursula decides how to price new products in her gift store, she measures the value of her product
offerings against those of the other stores in her area. Ursula uses a __________________ pricing
strategy.
A. maximizing profits
B. target profit
C. target return
D. competitor-oriented
E. sales oriented

D. competitor-oriented

Ryan gave the manager of his convenience store a set of binoculars so she could see the gasoline prices
charged by the other convenience store at that intersection. Ryan told the manager to always match the
gasoline prices of the other store. Ryan is using a _____________________ pricing strategy.
A. maximizing profits
B. target profit
C. target return
D. status quo
E. sales

D. status quo

When firms set prices similar to those of competitors, they are following a strategy of
A. me-too pricing.
B. copycat pricing.
C. competitive parity.
D. market-broadening pricing.
E. industry-standard pricing.

C. competitive parity.

In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels. Each firm
weighs the comparative advantages and disadvantages of its offerings to determine whether to price
above, equal to, or below the other hotel. In these markets, the hotels are using a _______________
pricing strategy.
A. maximizing profits
B. target profit
C. target return
D. competitive parity
E. sales oriented

D. competitive parity

A customer orientation toward pricing implicitly invokes the concept of
A. knowing the dimensions of the target market.
B. positioning.
C. the income effect.
D. value.
E. None of these.

D. value.

A "no haggle" pricing policy is a type of _______________ pricing strategy.
A. maximizing profits
B. sales orientation
C. target return
D. status quo
E. customer-oriented

E. customer-oriented

Julia's is an upscale women's clothing store. Prices are based on customers' beliefs about the value of the
clothing. The store focuses on a limited target market and provides excellent customer service. Julia's is
using a ________________ pricing strategy.
A. customer-oriented
B. target profit
C. target return
D. status quo
E. maximizing profits

A. customer-oriented

A strategy of setting prices based on how customers develop their perceptions of value can often be the
most effective pricing strategy, especially if the strategy
A. leads the marketer to being the low-cost seller.
B. is supported by consistent advertising and distribution strategies.
C. challenges consumers to discard their perceptions of value.
D. is consistent with a competitive target return strategy.
E. does all of these

B. is supported by consistent advertising and distribution strategies.

Traditional demand curve economic theory is used by marketers to understand _______________ in the
five Cs of pricing.
A. competitors
B. channel members
C. cost
D. customers
E. company objectives

D. customers

Customers must see value in a product or service before they are willing to exchange time or money to
obtain it, but not all customers see the same value in a product. To analyze how many units will be sold at
any given price point, marketers draw on
A. a demand curve.
B. the law of averages.
C. multiple regression analyses.
D. target return strategies.
E. a sales orientation.

A. a demand curve.

A demand curve shows the relationship between ___________________ in a period of time.
A. income and demand
B. demand and cost
C. price and elasticity
D. profit and price
E. price and demand

E. price and demand

A demand curve is built assuming that
A. income is derived from demand.
B. price remains the same, and fixed costs change.
C. everything but price and demand remains the same.
D. a change in quantity demanded causes a change in price.
E. the firm does not advertise.

C. everything but price and demand remains the same.

According to a typical demand curve, the higher the price,
A. the greater the income effect.
B. the lower the quantity consumers will buy.
C. the lower the output of producers.
D. the greater the production costs.
E. the lower the cross-price elasticity.

B. the lower the quantity consumers will buy.

Customers purchase prestige products or services for the status of owning the products, not just for the
functionality. These products may not follow a typical demand curve if
A. people don't know the price.
B. raising the price makes more people want to own one.
C. similar products become less expensive.
D. the marketer can demonstrate that functionality is more important than prestige.
E. value is removed from the equation.

B. raising the price makes more people want to own one.

There is an old saying, "If you have to ask the price of a yacht, you cannot afford it." Products like yachts
are most likely to be associated with
A. cross-shopping.
B. competitive parity pricing.
C. target return value.
D. prestige pricing.
E. break-even point pricing.

D. prestige pricing.

_________________ measures consumers' sensitivity to price changes.
A. Cross-price elasticity of demand
B. Price elasticity of demand
C. Income elasticity of demand
D. Competitive profit elasticity of demand
E. Inelastic demand price parity

B. Price elasticity of demand

For which of the following is demand likely to be least sensitive to price increases?
A. Spring break vacations.
B. A specific brand of cereal.
C. Prescription drugs.
D. Theater tickets.
E. Restaurant meals

C. Prescription drugs.

For which of the following is demand likely to be most sensitive to price increases?
A. Prescription drugs.
B. College tuition for last-semester seniors.
C. Electricity.
D. Hospital care.
E. A specific brand of soft drink.

E. A specific brand of soft drink.

Price elasticity of demand is the
A. percentage change in quantity demanded divided by the percentage change in price.
B. percentage change in price divided by percentage change in quantity demanded.
C. change in price divided by change in quantity demanded.
D. change in quantity demanded divided by the change in price.
E. change in quantity demanded multiplied by the change in price

A. percentage change in quantity demanded divided by the percentage change in price.

A study found that, among addicted smokers, a 10 percent increase in the price of cigarettes resulted in a
2 percent decrease in quantity demanded. For these consumers, cigarettes have a(n) ________________
price elasticity demand.
A. elastic
B. inelastic
C. cross-price
D. income effect
E. substitution effect

B. inelastic

If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand, demand
is
A. cross-price elastic.
B. price inelastic.
C. price elastic.
D. status quo elasticity.
E. derived demand inelastic.

C. price elastic.

Near the end of the summer season, Sergio still has a large inventory of bathing suits. He needs to sell
them rather than holding them over till next season, because colors and styles often change. He plans to
offer them at 30 percent off the retail price. Sergio hopes that demand for bathing suits at the end of the
season is
A. cross-price elastic.
B. price inelastic.
C. price elastic.
D. status quo elastic.
E. derived demand inelastic.

C. price elastic.

Assume the demand for electricity, a necessity with few substitutes, is -0.2. If the electric company raised
its rates by 10 percent, we would expect
A. a 10 percent decrease in quantity demanded.
B. a 2 percent increase in quantity demanded.
C. a 10 percent increase in quantity demanded.
D. a 2 percent decrease in quantity demanded.
E. a 5 percent decrease in quantity demanded.

D. a 2 percent decrease in quantity demanded.

If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand
is
A. cross-price elastic.
B. price inelastic.
C. price elastic.
D. status quo elasticity.
E. derived demand inelastic

B. price inelastic.

Barry customizes Harley-Davidson motorcycles. No two cycles are alike. He notices that very few
customers even ask the price of his motorcycles before they decide to purchase them. Demand for his
motorcycles is probably
A. price sensitive.
B. price elastic.
C. price inelastic.
D. income elastic.
E. cross-price elastic.

C. price inelastic.

Ferrari and Lamborghini are manufacturers of very expensive automobiles. Their limited edition cars
often sell for $300,000 or more. For most consumers, these are prestige products, and demand is likely to
be
A. cross-price elastic.
B. price inelastic.
C. price elastic.
D. status quo elastic.
E. derived demand inelastic.

B. price inelastic.

Marketers of products and services associated with the wedding industry know that customers often do
not care what the price is. They just want the wedding to be perfect. For these customers, demand is
likely to be
A. cross-price elastic.
B. derived demand elastic.
C. price elastic.
D. status quo elastic.
E. price inelastic.

E. price inelastic.

The food and beverage manager at an upscale country club once offered a two-for-one happy hour price
for all alcoholic beverages, only to see very little response to the special. For these consumers, demand
for alcoholic beverages is
A. cross-price elastic.
B. derived demand elastic.
C. price elastic.
D. price inelastic.
E. status quo elastic.

D. price inelastic.

The observation that consumers are generally more sensitive to price increases than to price decreases
suggests that
A. most consumers cannot remember what price they paid the last time they bought a particular product.
B. it is easier to lose customers with a price increase than to gain customers with a price decrease.
C. most consumers would rather skip buying a product than pay a higher price.
D.most consumers are emotionally attached to their favorite products and are unlikely to change, even if
the price changes.
E. firms gain more customers with price decreases than they lose with price increases.

B. it is easier to lose customers with a price increase than to gain customers with a price decrease.

Sales of national brands of orange juice tend to increase when the economy is doing well, while sales
of generic orange juice increase when the economy is not doing well. Among industry members this
is called the "orange juice indicator." This is an example of how ____________ impacts demand for
products.
A. the substitution effect
B. the price inelasticity coefficient
C. the income effect
D. the target return effect
E. cross-price elasticity

C. the income effect

Rodi owns Hallman's auto repair service. He has observed over the years that customers keep their highmileage
cars longer when the economy is doing poorly, creating demand for his maintenance and repair
service. Rodi has observed the impact of ______________ on demand for his service.
A. breakeven points
B. the price inelasticity ratio
C. the income effect
D. target profit pricing
E. cross-price elasticity

C. the income effect

The more substitutes that exist in a market,
A. the lower the price elasticity for each product.
B. the greater the income elasticity for each product.
C. the easier it will be to utilize a target profit pricing strategy.
D. the more sensitive consumers will be to changes in the price of a particular product.
E. the more likely the market will be characterized as an oligopoly.

D. the more sensitive consumers will be to changes in the price of a particular product.

Brad always buys and uses Nike brand golf balls. If he finds a Titleist or Callaway ball in the rough, he
gives it away. Brand loyal golfers like Brad allow Nike to charge a higher price and not lose many sales.
By building a strong brand, Nike has effectively
A. increased the income effect for its products.
B. increased the cross-price elasticity for its products.
C. focused on the competitive parity point for its products.
D. shifted the golf ball market from a monopoly to pure competition.
E. reduced the price elasticity of demand for its products.

E. reduced the price elasticity of demand for its products.

Marketers spend millions of dollars annually trying to create or reinforce brand loyalty. Brand loyalty
changes the demand curve for the firm's products by
A. reducing the price elasticity of demand.
B. making demand more oligopolistic and less monopolistic.
C. increasing the income effect.
D. reducing fixed costs and increasing the gray marketing effect.
E. shifting the market from a monopoly to pure competition.

A. reducing the price elasticity of demand.

Cross-price elasticity is the
A. percentage change in quantity of a product demanded divided by the percentage change in its price.
B. percentage change in quantity demanded of product A compared to the percentage change in price of
product B.
C. change in price of product A divided by change in quantity demanded for product B.
D. change in quantity of a product demanded divided by the change in its price.
E. change in quantity of a product demanded divided by the change in its elasticity

B. percentage change in quantity demanded of product A compared to the percentage change in price of product B.

Which of the following is the most logical example of complementary products?
A. Hot dogs and hamburgers
B. VCRs and DVD players
C. Hot dogs and hot dog buns
D. Honda cars and Toyota cars
E. A university and a corporation

C. Hot dogs and hot dog buns

Bill is a yacht broker in the southeastern United States. For years he has had difficulty selling large
yachts locally because there were few places to dock these boats. Yachts and spaces to dock them are an
example of
A. substitute products.
B. purely competitive products.
C. status quo pricing products.
D. complementary products.
E. competitive parity products

D. complementary products.

If the price for a product increases, the demand for the complementary product will
A. decrease.
B. increase.
C. stay the same.
D. become more elastic.
E. become more inelastic

A. decrease.

Frank's Heating and Air Conditioning Company specializes in electric heat pumps. Frank keeps track of
the price of natural gas, knowing that
A. natural gas creates more environmental greenhouse effects than coal.
B. an increase in the price of natural gas will increase demand for his electrical heating systems.
C. gas heating systems and electrical heating systems are complementary goods.
D. when the price of natural gas goes up, the quantity demanded also rises.
E. the demand for natural gas is price elastic.

B. an increase in the price of natural gas will increase demand for his electrical heating systems.

If the price for a product increases, the demand for a substitute product will
A. decrease.
B. increase.
C. stay the same.
D. become more elastic.
E. become more inelastic

B. increase.

Managers of Wendy's fast food restaurants keep track of prices at competitors such as McDonald's,
Burger King, and Arby's, knowing that a decrease in the prices at these other fast food restaurants
will
A. increase the income effect for their products.
B. increase demand for their products.
C. decrease the income effect for their products.
D. increase the complementary effect for their products.
E. decrease demand for their products.

E. decrease demand for their products.

Internet comparison shopping sites like Shopping.com and Pricegrabber.com allow consumers to
compare prices of substitute products much more easily than is possible without the Internet. These sites
have
A. reduced the price elasticity demand for individual products.
B. increased the cross-price elasticity for substitute products.
C. increased the income effect on price elasticity of demand.
D. reduced the cross-price elasticity of demand for complementary goods.
E. decreased the price elasticity of demand for groups of similar products

B. increased the cross-price elasticity for substitute products.

One problem in relying on price elasticity and demand curves when setting prices is
A. the way a product or service is marketed can have a profound impact on price elasticity.
B. the underlying ideas of the demand curve and elasticity are less relevant in the modern economy.
C. only economists can properly analyze demand curves and set prices using this tool.
D. competitors can construct the same demand curves, so there is no advantage in using them.
E. marketing split from economics over the ideas of demand and elasticity.

A. the way a product or service is marketed can have a profound impact on price elasticity.

In general, prices should not be based on costs because
A. consumers are cost-conscious.
B. producers rarely know what their costs are.
C. consumers make their purchase decisions based on perceived value.
D. producers need to avoid creating a cost competitive parity debate.
E. customers are always right.

C. consumers make their purchase decisions based on perceived value.

Liz and Sarah watched the prices of all the ingredients in their line of specialty sauces go up and up.
Now, transportation costs are going through the roof. Liz suggested they could raise prices to cover these
expenses because customers would understand. Which of these is the most important factor Liz and Sarah
should consider before raising prices?
A. The costs might go back down again.
B. They will have to adjust their promotional literature.
C. Customers do not care about the company's costs; they care about value.
D. Rental costs for their production facility might go up next.
E.Consumers do not think about the cost of additional items; they are concerned mostly with the total
cost for a visit to a store.

C. Customers do not care about the company's costs; they care about value.

Labor, materials, and energy are typically __________ costs.
A. fixed
B. incidental
C. prestige
D. inelastic
E. variable

E. variable

Variable costs, primarily labor and materials, are those costs that vary with
A. seasonal demand.
B. quality of the product.
C. automation.
D. production volume.
E. all of these.

D. production volume.

David manages a Shoney's restaurant. He is considering staying open later in the evening. For David, the
variable costs associated with staying open longer hours will include all of the following EXCEPT
A. ingredients used in preparing food.
B. hours worked by cooks.
C. monthly rent on the restaurant building.
D. energy costs.
E. hours worked by the waiters and waitresses.

C. monthly rent on the restaurant building.

Variable costs change with
A. changes in fixed costs.
B. changes in cross-price elasticity.
C. changes in target return pricing.
D. changes in the quantity being produced.
E. competitive parity.

D. changes in the quantity being produced.

____________ are costs that remain constant as the volume of production increases or decreases.
A. Fixed costs
B. Variable costs
C. Beneficial costs
D. Contribution per unit costs
E. Break-even point costs

A. Fixed costs

Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He
expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50
per year to service. He also expects to generate $100,000 per year in revenue. For Raymond, the total cost
of opening the new branch and remaining open for one year will be:
A. $500,000.
B. $550,000.
C. $650,000.
D. $450,000.
E. $605,000.

B. $550,000.

At the break-even point,
A. costs are zero.
B. price is maximized.
C. profits are zero.
D. fixed costs are zero.
E. contribution per unit is zero.

C. profits are zero.

The break-even point is estimated by
A. multiplying revenue per unit times the quantity sold.
B. dividing fixed contribution per unit by variable costs.
C. multiplying fixed costs by contribution per unit.
D. dividing fixed costs by contribution per unit.
E. dividing variable costs by fixed costs.

D. dividing fixed costs by contribution per unit.

If the fixed costs of manufacturing a new cell phone are $10,000, the sales price is $60, and variable cost
per unit is $20, the break-even point is
A. 100 units.
B. 4,000 units.
C. 20 units.
D. 1,000 units.
E. 250 units.

E. 250 units.

Jacob rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20,
to cover maid service and utilities. His fixed costs are $100,000 and his profit last year was $20,000. For
Jacob, the contribution per unit is
A. $100.
B. $80.
C. $800.
D. $1,000.
E. It cannot be determined from the information provided.

B. $80.

The contribution per unit is
A. price minus total costs.
B. price minus total variable cost.
C. price minus variable cost per unit.
D. total revenue minus total cost.
E. break-even quantity divided by total fixed costs

C. price minus variable cost per unit.

Jason rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20.
His fixed costs are $100,000 and his target profit is $20,000. For Jason, to earn his target profit, he will
need to rent out ________ rooms.
A. 100
B. 1,500
C. 20,000
D. 1,000
E. It cannot be determined from the information provided.

B. 1,500

Break-even analysis is useful because it allows managers to
A. quantify the relationship between price elasticity and product elasticity.
B. reposition products based on their break-even positioning revenue.
C. estimate the quantity they will need to sell at a given price to break even.
D. determine the relationship between price and quantity demanded.
E. analyze the different elements contributing to their variable costs.

C. estimate the quantity they will need to sell at a given price to break even.

.One of the limitations associated with break-even analysis is that
A. it assumes fixed costs are zero.
B. it cannot adjust for high variable costs.
C. it only tells marketers what price is needed to break even.
D. it assumes that there is only one price.
E. it assumes that demand is extremely inelastic.

D. it assumes that there is only one price.

Which of the following markets is MOST likely to be characterized by oligopolistic competition in the
United States?
A. Soybeans.
B. Pens and pencils.
C. Soft drinks.
D. Men's clothing.
E. Electrical service to the home

C. Soft drinks.

Because there are only a few firms in markets with oligopolistic competition,
A. everyone is a price taker.
B. producers do not have to consider the reactions of rival firms.
C. government often encourages consolidation to reduce the number of competitors.
D. price wars may occur.
E. the many competitors will focus on product differentiation.

D. price wars may occur.

In a market with _______________, there are many firms providing differentiated products.
A. pure competition
B. oligopolistic competition
C. monopolistic competition
D. a monopoly
E. a duopoly

C. monopolistic competition

Because there are many firms in monopolistic competition markets,
A. everyone is a price taker.
B. producers do not have to consider the reactions of rival firms.
C. government often encourages consolidation to reduce the number of competitors.
D. price controls may be implemented.
E. the many competitors will focus on product differentiation.

E. the many competitors will focus on product differentiation.

In _______________, many firms provide similar products that are considered substitutes for each
other.
A. pure competition
B. oligopolistic competition
C. monopolistic competition
D. a monopoly
E. a duopoly

A. pure competition

Which of the following is most likely to be characterized by pure competition in the United States?
A. Soybeans.
B. Cereal.
C. Soft drinks.
D. Computer operating systems.
E. Fast food restaurants.

A. Soybeans.

Because there are many firms with similar products in purely competitive markets,
A. price is determined by the laws of supply and demand.
B. consumers develop personal preferences.
C. firms find it easy to build strong, distinct brands.
D. advertising is heavily used.
E. the many competitors will focus on variable cost pricing

A. price is determined by the laws of supply and demand.

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a
_______________ market.
A. pure competition
B. oligopolistic competition
C. monopolistic competition
D. monopoly
E. duopoly

C. monopolistic competition

How can a company find its way out of a market characterized by pure competition?
A. Consistently offer the lowest price until other competitors leave the market.
B. Increase prices and attract different, quality-oriented customers.
C. Decrease the amount of available product until the market reacts.
D. Increase the amount of available product to flood the market.
E. Differentiate the product in some way, even by packaging, so customers will see it as distinct.

E. Differentiate the product in some way, even by packaging, so customers will see it as distinct.

When working on pricing, the marketer must carefully consider the objectives of other channel members
to ensure
A. everyone makes as much profit as possible.
B. the manufacturer remains in control of the marketing channel.
C. pricing is consistently handled by all participants in the channel.
D. "image" does not get in the way of effective pricing.
E. the customer is in the mix.

C. pricing is consistently handled by all participants in the channel.

Gray markets can be a challenge to marketers because
A. they are just as illegal as black markets.
B. they may tarnish the manufacturer's image.
C. they are legal in some states and illegal in others.
D. consumers are against them, but retailers support them.
E. they may result in price increases across the board.

B. they may tarnish the manufacturer's image.

To discourage consumers from buying in gray markets, some manufacturers have
A. warned consumers that their warranty is null and void if purchased through a gray market supplier.
B. shifted advertising resources from gray markets to red markets.
C. increased the price to gray markets while maintaining existing prices to blue markets.
D. petitioned government regulators to impose price controls.
E. lowered the quality of their products to reduce gray market demand

A. warned consumers that their warranty is null and void if purchased through a gray market supplier.

The fact that millions of consumers are using online search engines for comparison shopping has
A. reduced demand.
B. made consumers more price sensitive.
C. reduced the income effect.
D. reduced price elasticity of demand.
E. increased the income effect

B. made consumers more price sensitive.

In addition to knowing more about the products, services, manufacturers, and retailers, Internet users
know more about prices. These consumers are becoming more
A. price insensitive.
B. price observant.
C. price neutral.
D. price sensitive.
E. adept at price negotiation for all kinds of products

D. price sensitive.

While prestige products and products for the status conscious command high prices and are targeted
toward customers with plenty of disposable income, marketers have noticed that
A. the rich and super-rich are getting fewer and fewer in number, and prestige pricing may become a
thing of the past.
B. most consumers don't want flashy or high-priced products and the market is dwindling.
C. there is a trend toward increased purchase of these products, most probably for the status conscious who would not normally be considered part of the target markets for these products.
D. styles are changing faster than ever, and it's hard to keep this market supplied with the products and
services they want and avoid obsolete or out-of-date inventory.
E. sales increase when prices for these items are reduced.

C. there is a trend toward increased purchase of these products, most probably for the status conscious who would not normally be considered part of the target markets for these products.

The fact that more consumers are buying prestige items like Rolex watches and Mercedes-Benz cars and
are, at the same time, shopping more at low-priced discount stores is called
A. pure competition.
B. monopolistic competition.
C. the elastic demand phenomenon.
D. the income effect.
E. cross-shopping.

E. cross-shopping.

Diane owns a bakery where she sells cupcakes. Two blocks down there is another bakery, CC's Bakery,
that sells cupcakes for $1 less than Diane. Diane decides to lower her price and match CC's Bakery
prices. What type of pricing strategy is Diane implementing?
A. Internal pricing
B. Profit-oriented pricing
C. Competitor-oriented pricing
D. Customer-oriented pricing
E. Sales-oriented pricing

C. Competitor-oriented pricing

Cindy went shopping for a new outfit. She bought a low-priced shirt at a discount store, and combined it
with an expensive designer skirt. Which of the following terms best describes Cindy's actions?
A. Cross-shopping
B. The income effect
C. Cross-price elasticity
D. The substitution effect
E. Specialty shopping

A. Cross-shopping

Thanh owns a shoe store. In this market, there are many firms competing for the same customers, but the
products offered differ by quality and price. Out of the four levels of competition, which one does this
market represent?
A. Monopolistic competition
B. Pure competition
C. Oligopolistic competition
D. Monopoly
E. Dominant competition

A. Monopolistic competition

.In which of the following levels of competition does one firm control the industry and restrict
competition?
A. Monopoly
B. Oligopoly
C. Monopolistic competition
D. Pure competition
E. Dominant competition

A. Monopoly

Winston's Ice Cream Shop has been in the same location for two decades. Last week, a new ice cream
shop opened up just one block down the street. Winston's decides to sell ice cream below cost in order to
drive the new shop out of business. What kind of pricing is Winston's using?
A. Predatory pricing
B. Competitive pricing
C. Ceiling pricing
D. Inelastic pricing
E. Keystoning

A. Predatory pricing

.A major hotel chain found that if it was to reduce the cost of the ice cream it currently served, it would be
able to save over 400 employees' jobs. Therefore, it switched from a high priced brand of ice cream to a
more moderate priced ice cream. This is known as the
A. substitution effect.
B. income effect.
C. brand effect.
D. commercial effect.
E. value effect.

A. substitution effect.

The point at which the number of units sold generates enough revenue to equal the total costs of running
an operation is known as the
A. contribution per unit.
B. fixed cost margin.
C. break-even point.
D. unit cost.
E. marginal revenue.

C. break-even point.

Your spice company's pricing is set according to the laws of supply and demand. Therefore, when selling
your spices you depend on the market to establish the price at which you will sell your spices. Which type
of market are you operating in?
A. Pure competition
B. Oligopoly
C. Monopoly
D. Monopolistic competition
E. Duopoly

A. Pure competition

The commercial airline industry is considered what type of market?
A. Duopoly
B. Monopoly
C. Monopolistic competition
D. Pure competition
E. Oligopoly

E. Oligopoly

Ch. 14 MAR 3023 - Subjecto.com

Ch. 14 MAR 3023

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Price is the cash expenditure plus taxes that consumers have to pay for a good or service.
True False

False

The key to successful pricing is to match the product with the consumer’s perception of value.
True False

True

Price is the only part of the marketing mix that does not generate costs.
True False

True

If Brandon buys hats for his store for $5 each and sells them for $15 each, he is using a keystoning
pricing strategy.
True False

False

Rarely is the lowest-price product offering the dominant brand in a given market.
True False

True

A demand curve shows the relationship between income and demand.
True False

False

Because consumers are generally more sensitive to price increases than to price decreases, it is easier to
lose current customers with a price increase than it is to gain new customers with a price decrease.
True False

True

Brands that have developed loyal customers have a higher price elasticity of demand.
True False

False

In U.S. markets, there are many substitute products for Fruit Loops cereal, suggesting the price elasticity
of demand for Fruit Loops is high.
True False

True

In general, prices should not be based on costs because consumers make their purchase decisions based
on perceived value, not the cost of production.
True False

True

At the break-even point, profits are maximized.
True False

False

In addition to the product-specific and firm-specific factors that affect pricing, there are two broader
factors: the Internet and sociocultural factors.
True False

False

A gray market employs irregular but not necessarily illegal methods of distributing products.
True False

True

Economic trends that affect pricing decisions include increases in disposable income and status
consciousness, a trend for customers to shop cheap, global economic conditions, and local economic
conditions.
True False

True

The Internet has decreased consumers’ price sensitivity.
True False

False

Diana owns a boutique specializing in ball gowns. Sales are stable and Diana feels it is time she had a 20
percent increase in her salary. If Diana takes this increase in compensation, it will decrease the breakeven
quantity of gowns she needs to sell on a monthly basis.
True False

False

If a firm is engaged in monopolistic competition, it should seek a way to differentiate itself.
True False

True

Firm A has set very low prices for its products in an attempt to drive its competitor, Firm B, out of
business. This is known as monopolistic pricing.
True False

False

Price is the _____________ a consumer is willing to make to acquire a specific product or service.
A. amount of money
B. overall sacrifice
C. fixed cost
D. target return
E. variable cost

B. overall sacrifice

Earl was known for driving 30 miles to save a dollar on the price for his favorite beverage. Earl perceived
price as ________________, while most consumers recognize price as the ______________ made to
acquire a good or service.
A. money paid; overall sacrifice
B. variable cost; fixed cost
C. fixed cost; variable payment
D. overall sacrifice; monetary payment
E. break-even amount; price elasticity

A. money paid; overall sacrifice

The full price of a product or service includes all of the following EXCEPT
A. taxes.
B. shipping.
C. travel costs.
D. the price of alternative products and services.
E. value of the consumer’s time.

D. the price of alternative products and services.

Consumers judge the benefits the product delivers against the ____________ necessary to obtain it.
A. monetary cost
B. profit
C. variable cost
D. total return
E. sacrifice

E. sacrifice

Dean runs a woodworking business specializing in kitchen cabinets. He knows there are other firms with
top-of-the-line machinery that make better quality cabinets, but he does well and has a constant flow of
business. Dean obviously has
A. figured out how to produce cheap products.
B. priced his products well.
C. reduced his variable costs by investing in fixed costs.
D. avoided monopolistic competition, and is instead in a market with pure competition.
E. learned how to use status quo pricing.

B. priced his products well.

If firms price their products too low, it may
A. result in lower costs.
B. create a premium pricing effect.
C. increase contribution per unit.
D. result in inelastic demand.
E. signal poor quality.

E. signal poor quality.

Gerald has a number of customers for his lawn care service who never question his bill but expect their
lawns to be perfect. These customers do not want low prices, they want
A. a sales orientation.
B. fixed costs.
C. cross-price discounts.
D. a target return.
E. high value.

E. high value.

Marketers can deliver high value through high or low prices, depending on
A. profit contribution per unit.
B. the bundle of benefits the product or service delivers.
C. monopolistic competition.
D. target return pricing that is greater than variable cost per unit.
E. the income effect.

B. the bundle of benefits the product or service delivers.

Unlike product, promotion, or place, price is the only part of the marketing mix
A. that offers the opportunity for an oligopoly.
B. that is subject to gray market manipulation.
C. that leads to competition.
D. that generates revenue.
E. that is determined by the consumer

D. that generates revenue.

Price is often the most challenging of the four Ps to manage, partly because it is often
___________________________ in developing marketing strategies.
A. the least important aspect
B. treated as an afterthought
C. calculated by senior consultants
D. difficult to calculate markups
E. the subject of cross-shopping differentiation

B. treated as an afterthought

Historically, prices were
A. the center of attention in almost all marketing strategies.
B. analyzed and changed constantly.
C. calculated to minimize contribution per unit.
D. allowed to vary seasonally as cross-shopping tendencies fluctuated.
E. rarely changed except in response to radical shifts in market conditions.

E. rarely changed except in response to radical shifts in market conditions.

Chet knows the pro shops selling his golf photography will "keystone" his products. He also knows sales
will decline significantly if the retail price is greater than $200. The maximum wholesale price Chet can
charge is
A. $200.
B. $100.
C. $50.
D. $10.
E. It cannot be determined from this information.

B. $100.

Using "keystoning" as a pricing strategy
A. creates undue complexity for retailers.
B. avoids having to participate in pure competition.
C. ignores consumers’ sensitivity to changes in prices.
D. allows marketers to estimate the substitution effect.
E. maximizes the difference between total cost and total variable cost

C. ignores consumers’ sensitivity to changes in prices.

Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as a gift for the
host. Since she does not know much about wine, she will likely use the price of the wines as
A. an indicator of quality.
B. a reflection of status quo pricing.
C. an indicator of the variety.
D. a measure of scarcity.
E. a measure of the income effect.

A. an indicator of quality.

Which of the following is NOT one of the Five Cs of pricing?
A. Customers.
B. Channel members.
C. Cost.
D. Collaboration.
E. Company objectives.

D. Collaboration.

Patricia and D’Wayne were working on pricing their line of handcrafted office furniture. D’Wayne
said, "I think we’ve got all the main components that affect us and our products, but let’s go over the
list once again. We’ve got the stores that will carry our products, our firm’s objectives, how customers
will respond, and the costs." Which of the following is missing from Patricia and D’Wayne’s list of the
components?
A. The message and media for the advertising campaign.
B. The competition’s pricing strategies.
C. The designs for products that haven’t yet been manufactured.
D. The number of new employees they’ll need if the products take off.
E. Whether or not their suppliers use sustainable raw materials.

B. The competition’s pricing strategies.

Tess is the marketing manager for a fast food restaurant chain. She uses a target return pricing strategy
because her firm’s primary objective is to
A. increase profits.
B. increase sales.
C. decrease competition.
D. build customer satisfaction.
E. broaden the product line.

A. increase profits.

Gary is the marketing manager for an automobile dealership. His boss tells him the firm’s primary goal is
to increase their local market share from 15 to 30 percent. Gary’s pricing strategy will focus on
A. increasing profits.
B. increasing sales.
C. decreasing competition.
D. building customer satisfaction.
E. product development.

B. increasing sales.

Bernard’s firm has set corporate direction to become one of the leaders in each of its significant market
segments. It was Bernard’s job to examine the pricing to determine how to maximize market share, even
at the expense of profits in the short run. What kind of company objective would guide Bernard’s effort?
A. Industry-oriented
B. Sales-oriented
C. Competitor-oriented
D. Innovation-oriented
E. Customer-oriented

B. Sales-oriented

Naomi tells her sales representatives the goal is to generate at least a 20 percent return on investment for
all of the industrial building supplies they sell. Naomi is using a _______________ pricing strategy.
A. sales orientation
B. target profit
C. target return
D. status quo
E. competitive parity

C. target return

A _________________ strategy involves accurately measuring all the factors needed to predict sales and
profits at various price levels, so that the price level that produces the highest return can be chosen.
A. sales orientation
B. target profit
C. target return
D. status quo
E. maximizing profits

E. maximizing profits

Health clubs often use a low, introductory offer price to get people to join their club. These low prices
represent a ______________ pricing strategy.
A. maximizing profits
B. target profit
C. target return
D. status quo
E. sales orientation

E. sales orientation

Many years ago Honda’s Accord and Ford’s Taurus were the top two selling cars in the United States. As
the year was coming to an end, Ford cut the price of the Taurus, hoping to outsell the Accord and allow
Ford to claim that "Taurus is the best-selling car in America." Ford was using a ___________________
pricing strategy.
A. maximizing profits
B. target profit
C. sales orientation
D. status quo
E. target return

C. sales orientation

Julia wants her firm’s gourmet snacks to be the leading brand in the U.S. market. When adopting a pricing
strategy designed to gain market share, she should remember that
A. rarely is the lowest-price offering the dominant brand in a market.
B. prestige products need to be competitively priced.
C. companies can gain market share by offering low-quality products at a high price.
D. total value equals total cost minus variable costs leading to price escalation.
E. price wars are the way to become the dominant brand.

A. rarely is the lowest-price offering the dominant brand in a market.

Sharon knew that her established customers liked her product much better than the competitors. She was
planning to expand into new markets, and she was considering pricing. She was leaning toward charging
a higher price than competitors to help demonstrate that hers was a high-quality product. Sharon was
considering
A. a top of market strategy.
B. the value of quality.
C. advantageous pricing.
D. premium pricing.
E. differential pricing

D. premium pricing.

When Ursula decides how to price new products in her gift store, she measures the value of her product
offerings against those of the other stores in her area. Ursula uses a __________________ pricing
strategy.
A. maximizing profits
B. target profit
C. target return
D. competitor-oriented
E. sales oriented

D. competitor-oriented

Ryan gave the manager of his convenience store a set of binoculars so she could see the gasoline prices
charged by the other convenience store at that intersection. Ryan told the manager to always match the
gasoline prices of the other store. Ryan is using a _____________________ pricing strategy.
A. maximizing profits
B. target profit
C. target return
D. status quo
E. sales

D. status quo

When firms set prices similar to those of competitors, they are following a strategy of
A. me-too pricing.
B. copycat pricing.
C. competitive parity.
D. market-broadening pricing.
E. industry-standard pricing.

C. competitive parity.

In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels. Each firm
weighs the comparative advantages and disadvantages of its offerings to determine whether to price
above, equal to, or below the other hotel. In these markets, the hotels are using a _______________
pricing strategy.
A. maximizing profits
B. target profit
C. target return
D. competitive parity
E. sales oriented

D. competitive parity

A customer orientation toward pricing implicitly invokes the concept of
A. knowing the dimensions of the target market.
B. positioning.
C. the income effect.
D. value.
E. None of these.

D. value.

A "no haggle" pricing policy is a type of _______________ pricing strategy.
A. maximizing profits
B. sales orientation
C. target return
D. status quo
E. customer-oriented

E. customer-oriented

Julia’s is an upscale women’s clothing store. Prices are based on customers’ beliefs about the value of the
clothing. The store focuses on a limited target market and provides excellent customer service. Julia’s is
using a ________________ pricing strategy.
A. customer-oriented
B. target profit
C. target return
D. status quo
E. maximizing profits

A. customer-oriented

A strategy of setting prices based on how customers develop their perceptions of value can often be the
most effective pricing strategy, especially if the strategy
A. leads the marketer to being the low-cost seller.
B. is supported by consistent advertising and distribution strategies.
C. challenges consumers to discard their perceptions of value.
D. is consistent with a competitive target return strategy.
E. does all of these

B. is supported by consistent advertising and distribution strategies.

Traditional demand curve economic theory is used by marketers to understand _______________ in the
five Cs of pricing.
A. competitors
B. channel members
C. cost
D. customers
E. company objectives

D. customers

Customers must see value in a product or service before they are willing to exchange time or money to
obtain it, but not all customers see the same value in a product. To analyze how many units will be sold at
any given price point, marketers draw on
A. a demand curve.
B. the law of averages.
C. multiple regression analyses.
D. target return strategies.
E. a sales orientation.

A. a demand curve.

A demand curve shows the relationship between ___________________ in a period of time.
A. income and demand
B. demand and cost
C. price and elasticity
D. profit and price
E. price and demand

E. price and demand

A demand curve is built assuming that
A. income is derived from demand.
B. price remains the same, and fixed costs change.
C. everything but price and demand remains the same.
D. a change in quantity demanded causes a change in price.
E. the firm does not advertise.

C. everything but price and demand remains the same.

According to a typical demand curve, the higher the price,
A. the greater the income effect.
B. the lower the quantity consumers will buy.
C. the lower the output of producers.
D. the greater the production costs.
E. the lower the cross-price elasticity.

B. the lower the quantity consumers will buy.

Customers purchase prestige products or services for the status of owning the products, not just for the
functionality. These products may not follow a typical demand curve if
A. people don’t know the price.
B. raising the price makes more people want to own one.
C. similar products become less expensive.
D. the marketer can demonstrate that functionality is more important than prestige.
E. value is removed from the equation.

B. raising the price makes more people want to own one.

There is an old saying, "If you have to ask the price of a yacht, you cannot afford it." Products like yachts
are most likely to be associated with
A. cross-shopping.
B. competitive parity pricing.
C. target return value.
D. prestige pricing.
E. break-even point pricing.

D. prestige pricing.

_________________ measures consumers’ sensitivity to price changes.
A. Cross-price elasticity of demand
B. Price elasticity of demand
C. Income elasticity of demand
D. Competitive profit elasticity of demand
E. Inelastic demand price parity

B. Price elasticity of demand

For which of the following is demand likely to be least sensitive to price increases?
A. Spring break vacations.
B. A specific brand of cereal.
C. Prescription drugs.
D. Theater tickets.
E. Restaurant meals

C. Prescription drugs.

For which of the following is demand likely to be most sensitive to price increases?
A. Prescription drugs.
B. College tuition for last-semester seniors.
C. Electricity.
D. Hospital care.
E. A specific brand of soft drink.

E. A specific brand of soft drink.

Price elasticity of demand is the
A. percentage change in quantity demanded divided by the percentage change in price.
B. percentage change in price divided by percentage change in quantity demanded.
C. change in price divided by change in quantity demanded.
D. change in quantity demanded divided by the change in price.
E. change in quantity demanded multiplied by the change in price

A. percentage change in quantity demanded divided by the percentage change in price.

A study found that, among addicted smokers, a 10 percent increase in the price of cigarettes resulted in a
2 percent decrease in quantity demanded. For these consumers, cigarettes have a(n) ________________
price elasticity demand.
A. elastic
B. inelastic
C. cross-price
D. income effect
E. substitution effect

B. inelastic

If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand, demand
is
A. cross-price elastic.
B. price inelastic.
C. price elastic.
D. status quo elasticity.
E. derived demand inelastic.

C. price elastic.

Near the end of the summer season, Sergio still has a large inventory of bathing suits. He needs to sell
them rather than holding them over till next season, because colors and styles often change. He plans to
offer them at 30 percent off the retail price. Sergio hopes that demand for bathing suits at the end of the
season is
A. cross-price elastic.
B. price inelastic.
C. price elastic.
D. status quo elastic.
E. derived demand inelastic.

C. price elastic.

Assume the demand for electricity, a necessity with few substitutes, is -0.2. If the electric company raised
its rates by 10 percent, we would expect
A. a 10 percent decrease in quantity demanded.
B. a 2 percent increase in quantity demanded.
C. a 10 percent increase in quantity demanded.
D. a 2 percent decrease in quantity demanded.
E. a 5 percent decrease in quantity demanded.

D. a 2 percent decrease in quantity demanded.

If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand
is
A. cross-price elastic.
B. price inelastic.
C. price elastic.
D. status quo elasticity.
E. derived demand inelastic

B. price inelastic.

Barry customizes Harley-Davidson motorcycles. No two cycles are alike. He notices that very few
customers even ask the price of his motorcycles before they decide to purchase them. Demand for his
motorcycles is probably
A. price sensitive.
B. price elastic.
C. price inelastic.
D. income elastic.
E. cross-price elastic.

C. price inelastic.

Ferrari and Lamborghini are manufacturers of very expensive automobiles. Their limited edition cars
often sell for $300,000 or more. For most consumers, these are prestige products, and demand is likely to
be
A. cross-price elastic.
B. price inelastic.
C. price elastic.
D. status quo elastic.
E. derived demand inelastic.

B. price inelastic.

Marketers of products and services associated with the wedding industry know that customers often do
not care what the price is. They just want the wedding to be perfect. For these customers, demand is
likely to be
A. cross-price elastic.
B. derived demand elastic.
C. price elastic.
D. status quo elastic.
E. price inelastic.

E. price inelastic.

The food and beverage manager at an upscale country club once offered a two-for-one happy hour price
for all alcoholic beverages, only to see very little response to the special. For these consumers, demand
for alcoholic beverages is
A. cross-price elastic.
B. derived demand elastic.
C. price elastic.
D. price inelastic.
E. status quo elastic.

D. price inelastic.

The observation that consumers are generally more sensitive to price increases than to price decreases
suggests that
A. most consumers cannot remember what price they paid the last time they bought a particular product.
B. it is easier to lose customers with a price increase than to gain customers with a price decrease.
C. most consumers would rather skip buying a product than pay a higher price.
D.most consumers are emotionally attached to their favorite products and are unlikely to change, even if
the price changes.
E. firms gain more customers with price decreases than they lose with price increases.

B. it is easier to lose customers with a price increase than to gain customers with a price decrease.

Sales of national brands of orange juice tend to increase when the economy is doing well, while sales
of generic orange juice increase when the economy is not doing well. Among industry members this
is called the "orange juice indicator." This is an example of how ____________ impacts demand for
products.
A. the substitution effect
B. the price inelasticity coefficient
C. the income effect
D. the target return effect
E. cross-price elasticity

C. the income effect

Rodi owns Hallman’s auto repair service. He has observed over the years that customers keep their highmileage
cars longer when the economy is doing poorly, creating demand for his maintenance and repair
service. Rodi has observed the impact of ______________ on demand for his service.
A. breakeven points
B. the price inelasticity ratio
C. the income effect
D. target profit pricing
E. cross-price elasticity

C. the income effect

The more substitutes that exist in a market,
A. the lower the price elasticity for each product.
B. the greater the income elasticity for each product.
C. the easier it will be to utilize a target profit pricing strategy.
D. the more sensitive consumers will be to changes in the price of a particular product.
E. the more likely the market will be characterized as an oligopoly.

D. the more sensitive consumers will be to changes in the price of a particular product.

Brad always buys and uses Nike brand golf balls. If he finds a Titleist or Callaway ball in the rough, he
gives it away. Brand loyal golfers like Brad allow Nike to charge a higher price and not lose many sales.
By building a strong brand, Nike has effectively
A. increased the income effect for its products.
B. increased the cross-price elasticity for its products.
C. focused on the competitive parity point for its products.
D. shifted the golf ball market from a monopoly to pure competition.
E. reduced the price elasticity of demand for its products.

E. reduced the price elasticity of demand for its products.

Marketers spend millions of dollars annually trying to create or reinforce brand loyalty. Brand loyalty
changes the demand curve for the firm’s products by
A. reducing the price elasticity of demand.
B. making demand more oligopolistic and less monopolistic.
C. increasing the income effect.
D. reducing fixed costs and increasing the gray marketing effect.
E. shifting the market from a monopoly to pure competition.

A. reducing the price elasticity of demand.

Cross-price elasticity is the
A. percentage change in quantity of a product demanded divided by the percentage change in its price.
B. percentage change in quantity demanded of product A compared to the percentage change in price of
product B.
C. change in price of product A divided by change in quantity demanded for product B.
D. change in quantity of a product demanded divided by the change in its price.
E. change in quantity of a product demanded divided by the change in its elasticity

B. percentage change in quantity demanded of product A compared to the percentage change in price of product B.

Which of the following is the most logical example of complementary products?
A. Hot dogs and hamburgers
B. VCRs and DVD players
C. Hot dogs and hot dog buns
D. Honda cars and Toyota cars
E. A university and a corporation

C. Hot dogs and hot dog buns

Bill is a yacht broker in the southeastern United States. For years he has had difficulty selling large
yachts locally because there were few places to dock these boats. Yachts and spaces to dock them are an
example of
A. substitute products.
B. purely competitive products.
C. status quo pricing products.
D. complementary products.
E. competitive parity products

D. complementary products.

If the price for a product increases, the demand for the complementary product will
A. decrease.
B. increase.
C. stay the same.
D. become more elastic.
E. become more inelastic

A. decrease.

Frank’s Heating and Air Conditioning Company specializes in electric heat pumps. Frank keeps track of
the price of natural gas, knowing that
A. natural gas creates more environmental greenhouse effects than coal.
B. an increase in the price of natural gas will increase demand for his electrical heating systems.
C. gas heating systems and electrical heating systems are complementary goods.
D. when the price of natural gas goes up, the quantity demanded also rises.
E. the demand for natural gas is price elastic.

B. an increase in the price of natural gas will increase demand for his electrical heating systems.

If the price for a product increases, the demand for a substitute product will
A. decrease.
B. increase.
C. stay the same.
D. become more elastic.
E. become more inelastic

B. increase.

Managers of Wendy’s fast food restaurants keep track of prices at competitors such as McDonald’s,
Burger King, and Arby’s, knowing that a decrease in the prices at these other fast food restaurants
will
A. increase the income effect for their products.
B. increase demand for their products.
C. decrease the income effect for their products.
D. increase the complementary effect for their products.
E. decrease demand for their products.

E. decrease demand for their products.

Internet comparison shopping sites like Shopping.com and Pricegrabber.com allow consumers to
compare prices of substitute products much more easily than is possible without the Internet. These sites
have
A. reduced the price elasticity demand for individual products.
B. increased the cross-price elasticity for substitute products.
C. increased the income effect on price elasticity of demand.
D. reduced the cross-price elasticity of demand for complementary goods.
E. decreased the price elasticity of demand for groups of similar products

B. increased the cross-price elasticity for substitute products.

One problem in relying on price elasticity and demand curves when setting prices is
A. the way a product or service is marketed can have a profound impact on price elasticity.
B. the underlying ideas of the demand curve and elasticity are less relevant in the modern economy.
C. only economists can properly analyze demand curves and set prices using this tool.
D. competitors can construct the same demand curves, so there is no advantage in using them.
E. marketing split from economics over the ideas of demand and elasticity.

A. the way a product or service is marketed can have a profound impact on price elasticity.

In general, prices should not be based on costs because
A. consumers are cost-conscious.
B. producers rarely know what their costs are.
C. consumers make their purchase decisions based on perceived value.
D. producers need to avoid creating a cost competitive parity debate.
E. customers are always right.

C. consumers make their purchase decisions based on perceived value.

Liz and Sarah watched the prices of all the ingredients in their line of specialty sauces go up and up.
Now, transportation costs are going through the roof. Liz suggested they could raise prices to cover these
expenses because customers would understand. Which of these is the most important factor Liz and Sarah
should consider before raising prices?
A. The costs might go back down again.
B. They will have to adjust their promotional literature.
C. Customers do not care about the company’s costs; they care about value.
D. Rental costs for their production facility might go up next.
E.Consumers do not think about the cost of additional items; they are concerned mostly with the total
cost for a visit to a store.

C. Customers do not care about the company’s costs; they care about value.

Labor, materials, and energy are typically __________ costs.
A. fixed
B. incidental
C. prestige
D. inelastic
E. variable

E. variable

Variable costs, primarily labor and materials, are those costs that vary with
A. seasonal demand.
B. quality of the product.
C. automation.
D. production volume.
E. all of these.

D. production volume.

David manages a Shoney’s restaurant. He is considering staying open later in the evening. For David, the
variable costs associated with staying open longer hours will include all of the following EXCEPT
A. ingredients used in preparing food.
B. hours worked by cooks.
C. monthly rent on the restaurant building.
D. energy costs.
E. hours worked by the waiters and waitresses.

C. monthly rent on the restaurant building.

Variable costs change with
A. changes in fixed costs.
B. changes in cross-price elasticity.
C. changes in target return pricing.
D. changes in the quantity being produced.
E. competitive parity.

D. changes in the quantity being produced.

____________ are costs that remain constant as the volume of production increases or decreases.
A. Fixed costs
B. Variable costs
C. Beneficial costs
D. Contribution per unit costs
E. Break-even point costs

A. Fixed costs

Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He
expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50
per year to service. He also expects to generate $100,000 per year in revenue. For Raymond, the total cost
of opening the new branch and remaining open for one year will be:
A. $500,000.
B. $550,000.
C. $650,000.
D. $450,000.
E. $605,000.

B. $550,000.

At the break-even point,
A. costs are zero.
B. price is maximized.
C. profits are zero.
D. fixed costs are zero.
E. contribution per unit is zero.

C. profits are zero.

The break-even point is estimated by
A. multiplying revenue per unit times the quantity sold.
B. dividing fixed contribution per unit by variable costs.
C. multiplying fixed costs by contribution per unit.
D. dividing fixed costs by contribution per unit.
E. dividing variable costs by fixed costs.

D. dividing fixed costs by contribution per unit.

If the fixed costs of manufacturing a new cell phone are $10,000, the sales price is $60, and variable cost
per unit is $20, the break-even point is
A. 100 units.
B. 4,000 units.
C. 20 units.
D. 1,000 units.
E. 250 units.

E. 250 units.

Jacob rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20,
to cover maid service and utilities. His fixed costs are $100,000 and his profit last year was $20,000. For
Jacob, the contribution per unit is
A. $100.
B. $80.
C. $800.
D. $1,000.
E. It cannot be determined from the information provided.

B. $80.

The contribution per unit is
A. price minus total costs.
B. price minus total variable cost.
C. price minus variable cost per unit.
D. total revenue minus total cost.
E. break-even quantity divided by total fixed costs

C. price minus variable cost per unit.

Jason rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20.
His fixed costs are $100,000 and his target profit is $20,000. For Jason, to earn his target profit, he will
need to rent out ________ rooms.
A. 100
B. 1,500
C. 20,000
D. 1,000
E. It cannot be determined from the information provided.

B. 1,500

Break-even analysis is useful because it allows managers to
A. quantify the relationship between price elasticity and product elasticity.
B. reposition products based on their break-even positioning revenue.
C. estimate the quantity they will need to sell at a given price to break even.
D. determine the relationship between price and quantity demanded.
E. analyze the different elements contributing to their variable costs.

C. estimate the quantity they will need to sell at a given price to break even.

.One of the limitations associated with break-even analysis is that
A. it assumes fixed costs are zero.
B. it cannot adjust for high variable costs.
C. it only tells marketers what price is needed to break even.
D. it assumes that there is only one price.
E. it assumes that demand is extremely inelastic.

D. it assumes that there is only one price.

Which of the following markets is MOST likely to be characterized by oligopolistic competition in the
United States?
A. Soybeans.
B. Pens and pencils.
C. Soft drinks.
D. Men’s clothing.
E. Electrical service to the home

C. Soft drinks.

Because there are only a few firms in markets with oligopolistic competition,
A. everyone is a price taker.
B. producers do not have to consider the reactions of rival firms.
C. government often encourages consolidation to reduce the number of competitors.
D. price wars may occur.
E. the many competitors will focus on product differentiation.

D. price wars may occur.

In a market with _______________, there are many firms providing differentiated products.
A. pure competition
B. oligopolistic competition
C. monopolistic competition
D. a monopoly
E. a duopoly

C. monopolistic competition

Because there are many firms in monopolistic competition markets,
A. everyone is a price taker.
B. producers do not have to consider the reactions of rival firms.
C. government often encourages consolidation to reduce the number of competitors.
D. price controls may be implemented.
E. the many competitors will focus on product differentiation.

E. the many competitors will focus on product differentiation.

In _______________, many firms provide similar products that are considered substitutes for each
other.
A. pure competition
B. oligopolistic competition
C. monopolistic competition
D. a monopoly
E. a duopoly

A. pure competition

Which of the following is most likely to be characterized by pure competition in the United States?
A. Soybeans.
B. Cereal.
C. Soft drinks.
D. Computer operating systems.
E. Fast food restaurants.

A. Soybeans.

Because there are many firms with similar products in purely competitive markets,
A. price is determined by the laws of supply and demand.
B. consumers develop personal preferences.
C. firms find it easy to build strong, distinct brands.
D. advertising is heavily used.
E. the many competitors will focus on variable cost pricing

A. price is determined by the laws of supply and demand.

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a
_______________ market.
A. pure competition
B. oligopolistic competition
C. monopolistic competition
D. monopoly
E. duopoly

C. monopolistic competition

How can a company find its way out of a market characterized by pure competition?
A. Consistently offer the lowest price until other competitors leave the market.
B. Increase prices and attract different, quality-oriented customers.
C. Decrease the amount of available product until the market reacts.
D. Increase the amount of available product to flood the market.
E. Differentiate the product in some way, even by packaging, so customers will see it as distinct.

E. Differentiate the product in some way, even by packaging, so customers will see it as distinct.

When working on pricing, the marketer must carefully consider the objectives of other channel members
to ensure
A. everyone makes as much profit as possible.
B. the manufacturer remains in control of the marketing channel.
C. pricing is consistently handled by all participants in the channel.
D. "image" does not get in the way of effective pricing.
E. the customer is in the mix.

C. pricing is consistently handled by all participants in the channel.

Gray markets can be a challenge to marketers because
A. they are just as illegal as black markets.
B. they may tarnish the manufacturer’s image.
C. they are legal in some states and illegal in others.
D. consumers are against them, but retailers support them.
E. they may result in price increases across the board.

B. they may tarnish the manufacturer’s image.

To discourage consumers from buying in gray markets, some manufacturers have
A. warned consumers that their warranty is null and void if purchased through a gray market supplier.
B. shifted advertising resources from gray markets to red markets.
C. increased the price to gray markets while maintaining existing prices to blue markets.
D. petitioned government regulators to impose price controls.
E. lowered the quality of their products to reduce gray market demand

A. warned consumers that their warranty is null and void if purchased through a gray market supplier.

The fact that millions of consumers are using online search engines for comparison shopping has
A. reduced demand.
B. made consumers more price sensitive.
C. reduced the income effect.
D. reduced price elasticity of demand.
E. increased the income effect

B. made consumers more price sensitive.

In addition to knowing more about the products, services, manufacturers, and retailers, Internet users
know more about prices. These consumers are becoming more
A. price insensitive.
B. price observant.
C. price neutral.
D. price sensitive.
E. adept at price negotiation for all kinds of products

D. price sensitive.

While prestige products and products for the status conscious command high prices and are targeted
toward customers with plenty of disposable income, marketers have noticed that
A. the rich and super-rich are getting fewer and fewer in number, and prestige pricing may become a
thing of the past.
B. most consumers don’t want flashy or high-priced products and the market is dwindling.
C. there is a trend toward increased purchase of these products, most probably for the status conscious who would not normally be considered part of the target markets for these products.
D. styles are changing faster than ever, and it’s hard to keep this market supplied with the products and
services they want and avoid obsolete or out-of-date inventory.
E. sales increase when prices for these items are reduced.

C. there is a trend toward increased purchase of these products, most probably for the status conscious who would not normally be considered part of the target markets for these products.

The fact that more consumers are buying prestige items like Rolex watches and Mercedes-Benz cars and
are, at the same time, shopping more at low-priced discount stores is called
A. pure competition.
B. monopolistic competition.
C. the elastic demand phenomenon.
D. the income effect.
E. cross-shopping.

E. cross-shopping.

Diane owns a bakery where she sells cupcakes. Two blocks down there is another bakery, CC’s Bakery,
that sells cupcakes for $1 less than Diane. Diane decides to lower her price and match CC’s Bakery
prices. What type of pricing strategy is Diane implementing?
A. Internal pricing
B. Profit-oriented pricing
C. Competitor-oriented pricing
D. Customer-oriented pricing
E. Sales-oriented pricing

C. Competitor-oriented pricing

Cindy went shopping for a new outfit. She bought a low-priced shirt at a discount store, and combined it
with an expensive designer skirt. Which of the following terms best describes Cindy’s actions?
A. Cross-shopping
B. The income effect
C. Cross-price elasticity
D. The substitution effect
E. Specialty shopping

A. Cross-shopping

Thanh owns a shoe store. In this market, there are many firms competing for the same customers, but the
products offered differ by quality and price. Out of the four levels of competition, which one does this
market represent?
A. Monopolistic competition
B. Pure competition
C. Oligopolistic competition
D. Monopoly
E. Dominant competition

A. Monopolistic competition

.In which of the following levels of competition does one firm control the industry and restrict
competition?
A. Monopoly
B. Oligopoly
C. Monopolistic competition
D. Pure competition
E. Dominant competition

A. Monopoly

Winston’s Ice Cream Shop has been in the same location for two decades. Last week, a new ice cream
shop opened up just one block down the street. Winston’s decides to sell ice cream below cost in order to
drive the new shop out of business. What kind of pricing is Winston’s using?
A. Predatory pricing
B. Competitive pricing
C. Ceiling pricing
D. Inelastic pricing
E. Keystoning

A. Predatory pricing

.A major hotel chain found that if it was to reduce the cost of the ice cream it currently served, it would be
able to save over 400 employees’ jobs. Therefore, it switched from a high priced brand of ice cream to a
more moderate priced ice cream. This is known as the
A. substitution effect.
B. income effect.
C. brand effect.
D. commercial effect.
E. value effect.

A. substitution effect.

The point at which the number of units sold generates enough revenue to equal the total costs of running
an operation is known as the
A. contribution per unit.
B. fixed cost margin.
C. break-even point.
D. unit cost.
E. marginal revenue.

C. break-even point.

Your spice company’s pricing is set according to the laws of supply and demand. Therefore, when selling
your spices you depend on the market to establish the price at which you will sell your spices. Which type
of market are you operating in?
A. Pure competition
B. Oligopoly
C. Monopoly
D. Monopolistic competition
E. Duopoly

A. Pure competition

The commercial airline industry is considered what type of market?
A. Duopoly
B. Monopoly
C. Monopolistic competition
D. Pure competition
E. Oligopoly

E. Oligopoly

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