Marketing Exam 3 Chapter 13

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A break-even chart refers to a graphic presentation

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

Apple iTunes has an advantage over Amazon as an online music supplier because

it has a larger market share and has tied its iTunes software to products like iPods.

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

monopolistic competition

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

monopolistic competition.

Elastic demand exists when

a small percentage decrease in price produces a larger percentage increase in quantity demanded and total revenue increases.

All of the following are examples of pricing objectives EXCEPT:

competitors’ price

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

unit variable cost

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

pure monopoly

Using Figure 13-4 above, how much price competition is likely for small coffee shops?

There are many sellers competing within a range of prices.

A maximizing current profit objective implies that a company chooses to

set targets whose performance can be measured quickly.

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

managing for long-run profits

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

market share.

All things being equal, if a firm finds the demand for one of its products is inelastic, it can increase its total revenues by

raising its price

In Figure 13-4 above, column "C" represents which type of competitive market?

oligopoly

Average revenue is

total revenue divided by the quantity sold.

Companies often pursue a market share objective when __________.

industry sales are flat or declining

Pricing objectives refer to

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

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

pure competition, monopolistic competition, oligopoly, and pure monopoly

Price elasticity of demand is determined by a number of factors such as whether the item is a luxury product or service, the availability of substitutes, the cash outlay of purchase relative to a person’s disposable income, and

the necessity of the product or service.

Inelastic demand exists when

a small percentage decrease in price produces a smaller percentage increase in quantity demanded and total revenue falls.

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

104 kits; The break-even point is calculated as fixed costs [($1,000 + $200 + $500 + $3,500) divided by (price {$100} minus unit variable costs {$50})], or [$5,200 ÷ ($100 – $50)] = 104 kits.

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

present and potential competitors

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

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

Florida Power & Light, an electric power company, is the only source of electricity for consumers in most parts of the Florida panhandle. As a(n) __________, the company receives approval from the state utility commission for the rates it can charge.

pure monopoly

A firm’s profit equation equals

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

According to Figure 13-7 above, when the price of Newsweek is $1.00 per issue, how many magazines will it sell?

6,000,000

Jane Westerlund owns a picture-framing shop, The Caplow Co. The average price she receives for a picture she frames for a customer is $120. This price must cover her costs for a typical framed picture, which consists of $5 for glass, $2 for matting, $13 for the frame, and $30 for the labor involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary. Westerlund is considering buying an automatic matte-cutting machine in order to reduce the number of hours of direct labor required to produce a framed picture. In considering this purchase, she should recognize this purchase will __________ Caplow’s variable cost and __________ Caplow’s fixed cost.

decrease; increase

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

pure competition

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

break-even analysis

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

return on assets

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

14,700; The break-even point is calculated as fixed costs divided by (price minus unit variable costs), or $4,200 ÷ ($10.50 – $7.50), which equals 1,400 carwashes; the break-even point in dollars = 1,400 × $10.50, which equals $14,700.

A firm’s profit equation demonstrates that profit equals __________.

total revenue-total cost

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

increase dollar sales revenue

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

cost estimation, marginal analysis, and break-even analysis

Figure 13-2 above represents the six steps in the price-setting process. "A" represents the step at which a firm would

identify pricing objectives and constraints.

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

With inelastic demand, reducing price will result in a decrease of total revenue.

Small regional producers selling grocery products have a special problem because they need to set prices at which both they and their channel members can profit while

competing with other brands to gain valuable space on supermarket shelves.

A company that manages apartments decides to buy 15 new dishwashers at a list price of $550 each as replacements for old dishwashers in a small apartment complex it owns. Because the company is buying more than 10 dishwashers, it is eligible for a $150-per-unit quantity discount. Financing charges total $20 per unit. The company gets $10 per dishwasher for the 15 dishwashers traded in. What is the final price the company will pay for each dishwasher?

410

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

"But, if we increase the price even by one dollar, how many customers will we lose?"

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

a reference value.

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

first-time buyers

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

price

Break-even analysis refers to

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

The change in total revenue that results from producing and marketing one additional unit of a product is referred to as __________.

marginal revenue

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

the higher the price that can usually be charged

For any downward-sloping, straight-line demand curve, the marginal revenue curve always

falls at a rate twice as fast as the demand curve.

Rents, executive salaries, and insurance are typical examples of

fixed costs.

Price refers to

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

At a price of $4.00 each, SHAPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price per issue is increased to $4.50 each, only 1 million copies will be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. Calculate the average revenue for SHAPE magazine at the higher price.

4.50; Average revenue is the average amount of money received for selling one unit of the product, or simply the price of this unit—in this case, $4.50.

With over half of tickets to major events sold online, StubHub’s website can help generate extra ticket sales for the original sponsors. This is why

StubHub now has formal relationships not only with professional sports leagues, but also with many sports programs at major universities.

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

fixed costs

Forever Quilting is a company that designs and distributes quilting kits. The kits are priced at $120 each. The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in quilting magazines, and $3,500 for the monthly salary of its owner. Forever Quilting’s marginal revenue is

120; Marginal revenue is the change in total revenue by selling one additional unit—in this case one quilting kit, which is priced at $120.

All of the following are examples of a price EXCEPT:

profit

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

building rental expense

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

the availability of substitutes

Figure 13-2 above represents the six steps in setting price. "F" represents the step at which a firm would

make special adjustments to list or quoted price

The horizontal axis of a demand curve graph represents __________.

quantity demanded

Which of the following statements most likely would account for the shift in the demand curve from D1 to D2 shown in Figure 13-5B above?

The firm’s price remained the same but changes occurred in consumer tastes.

The firm’s price remained the same but changes occurred in consumer tastes.

0; The break-even point ("A") is defined as the point at which profit is exactly $0. This occurs when the quantity sold equals 400 pictures. See Figure 13-12 in the textbook.

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

market share

Figure 13-12 above shows that by selling 800 pictures, the firm will

earn a profit

Figure 13-2 above represents the six steps in setting price. Which letter represents the step where a firm would conduct a break-even analysis?

C

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

Return on Assets

According to Nandan Nilekani, CEO of Infosys Technologies, Ltd., the "__________."

playing field is being leveled

Figure 13-2 above represents the six steps in setting price. Which letter represents the step where a firm would estimate costs and perform a marginal analysis to assess profitability?

C

In Figure 13-4 above, column "D" represents which type of competitive market?

pure monopoly

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

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

Using Figure 13-4 above, how much price competition is likely for bushels of wheat?

The market sets the price so there is no price competition.

According to Figure 13-7 above, what is the price of Newsweek when marginal revenue is $0?

1.50

A target return profit objective implies that a company chooses to

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

Washburn sells their guitars through a number of channels such as chains and online dealers, but they feel it is their independent dealers who sell the guitar for them. In recognition of their hard work, Washburn takes a smaller profit margin from them because they have to do more work. In essence, this special adjustment to the list price or quoted price is an example of a(n)

trade discount

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

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

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

managing for long-run profits

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

customer demand for it

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

return on investment

Los Angeles Lakers tickets cost so much because

the Lakers must cover all of their operating costs while earning a profit.

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

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

In Figure 13-12 above, "A" identifies a

break even point

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

monopolistic competition

The marketing director for a(n) __________ is most likely to believe the following statement, "The purpose of advertising is to increase demand for the product class."

pure monopolist competitor

With over 300 million customers, __________ is the world’s largest mobile phone market and is adding 5 million new customers a month.

china

To increase profits on digital music downloads, Amazon has

lowered its prices to try to lure customers from Apple iTunes.

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

pure competition

Figure 13-7 above shows that the average revenue at point "C" is

2.00

Market analysts for a large cereal company estimated that the price elasticity of demand for presweetened cereal is 1.97, but that the entire market for ready-to-eat cereals exhibits a price elasticity of demand of 0.36. Marketers collect this type of information in which step of the price-setting process?

estimating the demand and revenue

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

nostalgia and fad factors.

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

Fixed cost

The average price Washburn Guitars charges for a guitar is $349.99. This pricing level is most reflective of a(n) __________ approach.

odd-even pricing

Variable cost refers to

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

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

pure competition

Which of the following is a special type of price?

college tuition

If you wanted to buy a McDonald’s Big Mac, small fries, and a small drink separately, it you cost you $6.19. However, if you purchased these three items together as part of the firm’s Extra Value Meal package, you would pay only $4.39, savings 80¢. This "Extra Value Meal" price serves as __________ to you and other consumers, who compare the costs and benefits of substitute items to a bundle containing those items.

a reference value

A demand curve refers to a graph that relates

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

An oligopoly is a competitive market situation where

few sellers are sensitive to one another’s prices.

The Gap in-store signage photo above shows that customers can save 60 percent off a second item if they purchase one at the full price. This is an example of a __________ deal to entice shoppers to buy additional items.

BOGO

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

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

StubHub’s pricing formula is to

charge a commission to both buyers and sellers of the tickets sold on its website.

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

intermediate-skill players who may become professional musicians.

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

what they can buy

The average amount of money received for selling one unit of a product, or simply the price of that unit, is referred to as __________.

average revenue

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

estimation of demand, sales revenue, and price elasticity

Pricing constraints refer to

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

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

step 3

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

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

The marketing director for a(n) __________ is most likely to believe the following statement, "The purpose of advertising is to increase demand for the product class."

pure monopolist competitor

Ace Shoe Company sells heel replacement kits for men’s shoes. It has fixed costs of $6 million and unit variable costs of $5 per pair. Suppose a consultant tells Ace it can sell 750,000 heel repair kits, what price must it charge to achieve a profit of $2.5 million?

16.33; Profit = Total Revenue – Total Cost Profit = (Unit Price × Quantity Sold) – Total Cost Profit = (P × Q) – [FC + (UVC × Q)] $2,500,000 = ($P × 750,000) – [$6,000,000 + ($5 × 750,000)] $2,500,000 = $750,000P – $6,000,000 – $3,750,000 $12,250,000 = $750,000P P = $16.33

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

price

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

increase benefits

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

demand factors

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

quantity (Q)

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

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

To increase value, marketers have the option of

decreasing price and increasing benefits.

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

professional musicians

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

value

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

pure competition

Ampro-Mag is a small company that makes materials for safely controlling hazardous spills of all kinds. It sells these items as a neutralizing kit priced at $100 each. The costs of the materials that go into each kit are $25. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $300 for advertising in trade journals, and $3,000 for the monthly salary of its owner. Ampro-Mag’s average revenue per unit is

100; Average revenue is the average amount of money received for selling one unit of the product, or simply the price of this unit—in this case, $100.

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

rent for the company’s office

An analysis of a prospective product shows that it is expected to grow by at least 10 percent each year over the next 5 years, and then enter the maturity phase of its product life cycle. This type of analysis would provide useful information in which step of the price-setting process?

identifying pricing objectives and constraints

Unit volume as a pricing objective refers to

the quantity of products to be produced or sold.

Marginal cost is the change in total cost that results from

producing and marketing one additional unit of a product.

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

1,050 buckets; The break-even point is calculated as fixed costs divided by (price minus unit variable costs), or $4,200 ÷ ($9.50 – $5.50) = 1,050 buckets of chicken.

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

type of competitive market

Figure 13-2 above represents the six steps in setting price. "C" represents the step at which a firm would

determine cost, volume, and profit relationships.

Figure 13-5A above shows that when the price moves from $2.00 to $1.50 per unit along the demand curve D1, the quantity demanded

increases from 3.0 to 4.5 million units per year.

Total cost refers to

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

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

Step 6

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

pricing constraints

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

barter

Total revenue refers to

the total money received from the sale of a product.

A demand curve graph typically appears as

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

A BOGO offer is retail slang that means

buy one, get one

General Motors, Ford, and Chrysler have all recently experienced financial distress because

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

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

extra fees

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

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

A primary reason for Washburn’s success is

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

Price elasticity of demand (truths)

Price elasticity with unitary demand is equal to 1. The more substitutes a product has, the more likely it is to be price elastic. Items that require a large cash outlay compared with a person’s disposable income are price elastic. Price elasticity with inelastic demand is less than 1. Price elasticity with elastic demand is greater than 1. With inelastic demand, reducing price decreases total revenue.

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

oligopoly

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

price

Pure monopoly is the competitive market situation where

one seller sets the price for a unique product.

For years, a local "greasy spoon" diner had customers lining up around the building for breakfast. When the city announced that it was building an off ramp from the highway that would conceivably double his customer traffic, the proprietor was delighted. Having saved enough in previous years, he was certain it could hold him over through the three-month construction. Unfortunately, construction delays continued for an additional six months and the work is still in progress. The best pricing objective at this point for the diner’s owner would most likely be __________.

survival

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

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

Netflix used to charge $14.99 per month for its movie rental service. However, when Blockbuster introduced the same service at $13.99, Netflix then dropped its price to $13.99. Netflix most likely made this price reduction in an attempt to

maintain market share.

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

target return

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

$3,650

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

maximizing current profit

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

incentives and allowances

A reference value involves comparing the costs and benefits of __________.

substitute items

At a price of $2.00 each, SHAPE magazine sells 1 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price per issue is increased to $2.50, only 800,000 copies would be sold. From the information provided here, the price elasticity of demand for SHAPE magazine in this price range can be described as

elastic demand

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

stars and famous musicians

Pricing constraints are

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

What idea is described as a continuing, concise trade-off of incremental costs against incremental revenues?

marginal analysis

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

price elasticity of demand.

Which of the following illustrates movement along the demand curve?

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

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

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

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

8000 shirts

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

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

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

"We’re going to face some stiff competition."

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

cost of maintaining inventory

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

value pricing

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

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

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

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

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

step 5

Price elasticity of demand (E) is expressed as

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

Which of the following statements about unitary demand is most accurate?

Products with unitary demand will have price elasticity equal to 1.

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

demand factor

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

the ease of making price comparisons on the Internet

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

For marketing managers, sales revenue or unit sales are more easily addressed than profit goals.

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

$50

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

achieving a target return

Walmart uses which pricing strategy that affects both customers and competitors?

every day low pricing

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

decrease; decrease

Which of the following statements is most accurate?

Regardless of a company’s constraints, a firm must cover all the costs of producing and marketing a product, or the firm will fail.

how much price competition is likely for small coffee shops?

There are many sellers competing within a range of prices.

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

low prices

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

value

accurate statement

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

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

step 1

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

$10,000 A firm’s profit equation = Total revenue − Total cost or [(Unit price × Quantity sold) − (Fixed cost + Variable cost)]. Profit = (TR − TC) = [(P × Q) − (FC + VC)] = [($40 × 2,000) − ($50,000 + $20,000)] = $10,000.

Marketing executives must translate estimates of customer demand into estimates of

revenues the firm expects to receive.

A book on how to invest in collectibles spends several weeks on The New York Times bestseller list. The paperback book was originally released for $9.99. A reduction of the price to $9.79 had no effect on total revenue, which remained the same. This is due to the book having

unitary demand

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

determine cost, volume, and profit relationships

At a price of $3.00 each, SHAPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price per issue is increased to $3.25, only 1 million copies would be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. From the information provided here, what is SHAPE magazine’s total revenue obtained at the lower price?

$3,750,000

graph

"X" is marginal cost, "Y" is MR = MC, and "Z" is marginal revenue. Profit reaches its maximum at the quantity at which marginal revenue and marginal cost are equal.

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

market share

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