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Chapter 10 Pricing Products: Understanding and Capturing Customer Value

1) ________ is the amount of money charged for a product or service.


A) Experience curve
B) Demand curve
C) Price
D) Wage
E) a!ary
Ans"er# C
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%) Price is the on!y e!ement in the mar(eting mix that produces ________.
A) revenue
B) varia*!e costs
C) expenses
D) outfixed costs
E) sta*i!ity
Ans"er# A
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-) ________ is an important e!ement in the mar(eting mix. .t is the on!y e!ement that does not
represent costs.
A) Current profit maximi/ation
B) 0ar(et share !eadership
C) Price
D) Product 1ua!ity !eadership
E) 2he target mar(et
Ans"er# C
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6) Consumer perceptions of the product7s va!ue set the ________ for prices.
A) demand curve
B) f!oor
C) cei!ing
D) varia*!e cost
E) image
Ans"er# C
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8) Product costs set a9n) ________ to a product7s price.
A) demand curve
B) f!oor
C) cei!ing
D) *rea(,even cost
E) experience curve
Ans"er# B
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:) Which of the fo!!o"ing is a customer,oriented approach to pricing;
A) va!ue,*ased pricing
B) sea!ed,*id pricing
C) *rea(,even pricing
D) target profit pricing
E) C and D
Ans"er# A
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<) ________ uses *uyers7 perceptions of "hat a product is "orth4 not the se!!er7s cost4 as the (ey
to pricing.
A) =a!ue,*ased pricing
B) =a!ue,added pricing
C) =aria*!e cost
D) Price e!asticity
E) Product image
Ans"er# A
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>) .n ________4 price is considered a!ong "ith the other mar(eting mix varia*!es *efore the
mar(eting program is set.
A) va!ue,*ased pricing
B) cost,*ased pricing
C) varia*!e costs
D) price e!asticity
E) *ui!ding the mar(eting mix
Ans"er# A
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&) =a!ue,*ased pricing is the reverse process of ________.
A) varia*!e cost pricing
B) cost,p!us pricing
C) cost,*ased pricing
D) good,va!ue pricing
E) va!ue,added pricing
Ans"er# C
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1') With ________4 price is set to match consumers7 perceptions of product va!ue.
A) varia*!e cost pricing
B) cost,p!us pricing
C) cost,*ased pricing
D) va!ue,*ased pricing
E) every day !o" pricing
Ans"er# D
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11) 0easuring ________ can *e difficu!t. A company might conduct surveys or experiments to
test this in the different products they offer.
A) price e!asticity
B) the demand curve
C) perceived va!ue
D) *rea(,even pricing
E) 1uantity supp!ied
Ans"er# C
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1%) ?nderpriced products se!! very "e!!4 *ut they produce !ess revenue than they "ou!d have if
price "ere raised to the ________ !eve!.
A) perceived
B) va!ue,*ased
C) varia*!e
D) demand curve
E) price,f!oor
Ans"er# A
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1-) .f a se!!er charges ________ than the *uyer7s perceived va!ue4 the company7s sa!es "i!!
________.
A) more@ *enefit
B) more@ suffer
C) !ess@ increase
D) !ess@ suffer
E) none of the a*ove
Ans"er# B
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16) ome companies have adopted a ________ strategy4 offering +ust the right com*ination of
1ua!ity and good service at a fair price.
A) va!ue,*ased pricing
B) good,va!ue pricing
C) cost,p!us pricing
D) !o",price image
E) none of the a*ove
Ans"er# B
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18) Wa!,0art is famous for using "hat important type of va!ue pricing;
A) competition,*ased pricing
B) everyday !o" pricing
C) cost,p!us pricing
D) *rea(,even pricing
E) penetration pricing
Ans"er# B
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1:) ________ invo!ves charging a constant4 everyday !o" price "ith fe" or no temporary price
discounts.
A) 5igh,!o" pricing
B) 2arget pricing
C) Cost,p!us pricing
D) EDAP
E) Penetration pricing
Ans"er# D
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1<) ________ invo!ves attaching features and services to differentiate a company7s offers and to
support charging higher prices..
A) Brea(,even pricing
B) 2arget pricing
C) =a!ue,added pricing
D) Cost,p!us pricing
E) Pricing,do"n
Ans"er# C
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1>) ________ is a company7s po"er to escape price competition and to +ustify higher prices and
margins.
A) =aria*!e cost
B) Pricing po"er
C) 2arget cost
D) Bixed cost
E) ?nit cost
Ans"er# B
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1&) 2o maintain and increase a company7s ________4 a firm must retain or *ui!d the va!ue of its
mar(eting offer.
A) varia*!e cost
B) pricing po"er
C) target cost
D) fixed cost
E) image
Ans"er# B
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%') When there is price competition4 many companies adopt ________ rather than cutting prices
to match competitors.
A) pricing po"er
B) va!ue,added strategies
C) fixed costs
D) price e!asticity
E) image pricing
Ans"er# B
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%1) $yanair offers free f!ights to a 1uarter of its customers and roc(,*ottom prices to many of its
other customers. $yanair then charges for a!! extra services4 such as *aggage hand!ing and in,
f!ight refreshments. Which of the fo!!o"ing *est descri*es $yanair7s pricing method;
A) va!ue,added pricing
B) !o",cost pricing
C) cost,p!us pricing
D) high,!o" pricing
E) image pricing
Ans"er# B
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%%) ________ pricing invo!ves setting prices *ased on the costs for producing4 distri*uting4 and
se!!ing the product p!us a fair rate of return for the company7s efforts and ris(s.
A) =a!ue,*ased
B) Bixed cost
C) Cost,*ased
D) =aria*!e
E) (imming
Ans"er# C
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%-) Bixed costs ________ as the num*er of units produced increases.
A) decrease
B) increase
C) divide in ha!f
D) remain the same
E) increase at a diminishing rate
Ans"er# D
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%6) Costs that do not vary "ith production or sa!es !eve! are referred to as ________.
A) fixed costs
B) varia*!e costs
C) target costs
D) tota! costs
E) unit costs
Ans"er# A
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%8) $ent4 e!ectricity and executive sa!aries are examp!es of ________.
A) fixed costs
B) varia*!e costs
C) accumu!ated costs
D) tota! costs
E) mar(eting costs
Ans"er# A
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%:) Costs that vary direct!y "ith the !eve! of production are referred to as ________.
A) fixed costs
B) varia*!e costs
C) target costs
D) tota! costs
E) unit costs
Ans"er# B
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%<) ________ are the sum of the ________ and ________ for any given !eve! of production.
A) Bixed costs@ varia*!e@ tota! costs
B) Bixed costs@ tota!@ varia*!e costs
C) =aria*!e costs@ fixed@ tota! costs
D) 2ota! costs@ fixed@ varia*!e costs
E) Brea(,even costs@ fixed@ tota! costs
Ans"er# D
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%>) $AC is the acronym for "hich concept re!ated to costs at different !eve!s of production;
A) strategic reasoning and costs
B) short,run accounting costs
C) short,run average cost
D) strategic rights and company
E) strategic revenues and costs
Ans"er# C
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%&) As production "or(ers *ecome *etter organi/ed and more fami!iar "ith e1uipment4 the
average cost per unit decreases. 2his is ca!!ed the ________.
A) demand curve
B) experience curve
C) short,run average cost curve
D) !ong,run average cost curve
E) margina! uti!ity
Ans"er# B
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-') With a higher vo!ume of product4 most companies can expect to ________.
A) gain economies of sca!e
B) *ecome !ess efficient
C) see average costs increase
D) have a straight4 hori/onta! !earning curve
E) find competitors using the experience curve strategica!!y
Ans"er# A
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-1) 2he experience curve revea!s that ________.
A) repetition in production !o"ers costs
B) repetition in production enhances efficiency
C) the average cost drops "ith accumu!ated production experience
D) A4 B4 and C
E) none of the a*ove
Ans"er# D
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-%) When a do"n"ard,s!oping experience curve exists4 a company shou!d usua!!y ________ the
se!!ing price of that product in order to *ring in higher revenues.
A) increase
B) great!y increase
C) decrease
D) not a!ter
E) none of the a*ove
Ans"er# C
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--) Which of the fo!!o"ing is a ris( a company ta(es "hen *ui!ding a strategy around the
experience curve;
A) Competitors "i!! !i(e!y not *e a*!e to meet the company7s price cuts.
B) Existing techno!ogies are !i(e!y to *ecome more expensive as the company expands.
C) 2he method does not ta(e competitors7 prices into account.
D) 2he method may cause consumers to *ecome frustrated "ith changing prices.
E) Aggressive pricing may give the product a cheap image4 causing customers to !ose interest.
Ans"er# E
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-6) A company *ui!ding its pricing strategy around the experience curve "ou!d *e !i(e!y to
________.
A) price its products !o"
B) price its products high
C) engage in *rea(,even pricing
D) a!! of the a*ove
E) none of the a*ove
Ans"er# A
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-8) 2he company designs "hat it considers to *e a good product4 tota!s the expenses of ma(ing
the product4 and sets a price that adds a standard mar(,up to the cost of the product. 2his
approach to pricing is ca!!ed ________.
A) va!ue,*ased pricing
B) fixed cost pricing
C) cost,p!us pricing
D) varia*!e pricing
E) s(imming pricing
Ans"er# C
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-:) Aa"yers4 accountants4 and other professiona!s typica!!y price *y adding a standard mar(up
for profit. 2his is (no"n as ________.
A) varia*!e costs
B) cost,p!us pricing
C) va!ue,*ased pricing
D) *rea(,even price
E) penetration pricing
Ans"er# B
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-<) 2he simp!est pricing method is ________.
A) va!ue,*ased pricing
B) going,rate and sea!ed,*id pricing
C) cost,p!us pricing
D) *rea(,even ana!ysis
E) target profit pricing
Ans"er# C
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->) Which of the fo!!o"ing is a reason "hy mar(up pricing is C)2 practica!;
A) e!!ers earn a fair return on their investment.
B) By tying the price to cost4 se!!ers simp!ify pricing.
C) When a!! firms in the industry use this pricing method4 prices tend to *e simi!ar.
D) 2his method ignores demand.
E) With a standard mar(up4 consumers (no" "hen they are *eing overcharged.
Ans"er# D
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-&) )ne reason ________ remains popu!ar is that se!!ers are more certain a*out costs than a*out
demand.
A) mar(up pricing
B) varia*!e pricing
C) ine!asticity pricing
D) e!asticity pricing
E) penetration pricing
Ans"er# A
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6') Price competition is minimi/ed "hen a!! firms in an industry use "hich pricing method;
A) varia*!e pricing
B) mar(up pricing
C) e!asticity pricing
D) va!ue,added pricing
E) va!ue,*ased pricing
Ans"er# B
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61) 0any peop!e fee! that ________ pricing is fairer to *oth *uyers and se!!ers. e!!ers earn a fair
return on their investment *ut do not ta(e advantage of *uyers "hen *uyers7 demand *ecomes
great.
A) varia*!e
B) mar(up
C) e!asticity
D) ine!asticity
E) penetration
Ans"er# B
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6%) Which of the fo!!o"ing is a cost,*ased approach to pricing;
A) va!ue,*ased pricing
B) going,rate pricing
C) target profit pricing
D) good va!ue pricing
E) A and C
Ans"er# C
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6-) Brea(,even pricing4 or a variation ca!!ed ________4 is "hen the firm tries to determine the
price at "hich it "i!! *rea( even or ma(e the profit it is see(ing.
A) competition,*ased pricing
B) target profit pricing
C) fixed cost pricing
D) va!ue,*ased pricing
E) customer,*ased pricing
Ans"er# B
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66) 2arget profit pricing uses the concept of a ________4 "hich sho"s the tota! cost and tota!
revenue expected at different sa!es vo!ume !eve!s.
A) va!ue,*ased chart
B) *rea(,even chart
C) competition,*ased chart
D) demand,curve
E) unit cost
Ans"er# B
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68) 2he *rea(,even vo!ume is the point at "hich ________.
A) the tota! revenue and tota! costs !ines intersect
B) demand e1ua!s supp!y
C) the production of one more unit "i!! not increase profit
D) the company can pay a!! of its !ong,term de*t
E) a firm7s profit goa! is reached
Ans"er# A
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6:) ________ pricing "or(s on!y if that price actua!!y *rings in the expected !eve! of sa!es.
A) E!asticity
B) 0ar(up
C) =aria*!e
D) .ne!asticity
E) 2arget profit
Ans"er# E
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6<) Which of the fo!!o"ing statements a*out *rea(,even ana!ysis is true;
A) .t is used to determine ho" much production experience a company must have to achieve
desired efficiencies.
B) .t is a techni1ue used to ca!cu!ate fixed costs.
C) .t determines the amount of retained earnings a company "i!! have during an accounting
period.
D) .t is a techni1ue mar(eters use to examine the re!ationship *et"een supp!y and demand.
E) .t is ca!cu!ated using varia*!e costs4 the unit price4 and fixed costs.
Ans"er# E
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6>) As a manufacturer increases price4 the ________ drops.
A) target
B) *rea(,even vo!ume
C) cost,p!us pricing
D) tota! cost
E) sa!es
Ans"er# B
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6&) Which of the fo!!o"ing is an externa! factor that affects pricing decisions;
A) the sa!aries of production management
B) competition
C) the sa!aries of finance management
D) funds expensed to c!ean production e1uipment
E) A4 B4 and C
Ans"er# B
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8') ________ that inf!uence pricing decisions inc!ude the nature of the mar(et and demand and
competitors7 prices.
A) .nterna! factors
B) E!asticity factors
C) Externa! factors
D) 2arget factors
E) Domestic factors
Ans"er# C
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81) Companies may set prices !o" for "hich of the fo!!o"ing reasons EDCEP2 ________.
A) to prevent competition from entering the mar(et
B) to sta*i!i/e the mar(et
C) to create excitement for a product
D) to prepare for an easy exit from a mar(et
E) to match a competitor
Ans"er# D
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8%) .n order to form a consistent and effective integrated mar(eting program4 price decisions
shou!d *e coordinated "ith each of the fo!!o"ing EDCEP2 ________.
A) product design
B) distri*ution
C) competitors7 prices
D) promotion decisions
E) mar(eting o*+ectives
Ans"er# C
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8-) With target costing4 mar(eters "i!! first ________ and then ________.
A) *ui!d the mar(eting mix@ identify the target mar(et
B) identify the target mar(et@ *ui!d the mar(eting mix
C) design the product@ determine its cost
D) use s(imming pricing@ penetrating pricing
E) determine a se!!ing price@ target costs to ensure that the price is met
Ans"er# E
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86) Price setting is usua!!y determined *y ________ in sma!! companies.
A) top management
B) mar(eting departments
C) sa!es departments
D) divisiona! managers
E) cross,functiona! teams
Ans"er# A
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88) Price setting is usua!!y determined *y ________ in !arge companies.
A) top management
B) divisiona! managers
C) product !ine managers
D) pricing departments
E) *oth B and C
Ans"er# E
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8:) .n industria! mar(ets4 ________ typica!!y has the fina! say in setting the pricing o*+ectives
and po!icies of a company.
A) the sa!es manager
B) top management
C) the production manager
D) the finance manager
E) the pricing department
Ans"er# B
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8<) .n industries in "hich pricing is a (ey factor4 ________ often set the *est prices or he!p
others in setting them.
A) sa!es managers
B) top managers
C) production managers
D) finance managers
E) pricing departments
Ans"er# E
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8>) ?nder ________4 the mar(et consists of many *uyers and se!!ers trading in a uniform
commodity such as "heat4 copper4 or financia! securities.
A) pure competition
B) monopo!istic competition
C) o!igopo!istic competition
D) a pure monopo!y
E) anti,trust agreements
Ans"er# A
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8&) ?nder ________4 the mar(et consists of many *uyers and se!!ers "ho trade over a range of
prices rather than a sing!e mar(et price.
A) pure competition
B) monopo!istic competition
C) o!igopo!istic competition
D) pure monopo!y
E) socia!ism
Ans"er# B
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:') ?nder ________4 the mar(et consists of a fe" se!!ers "ho are high!y sensitive to each other7s
pricing and mar(eting strategies.
A) pure competition
B) monopo!istic competition
C) o!igopo!istic competition
D) pure monopo!y
E) capita!ism
Ans"er# C
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:1) Conregu!ated monopo!ies are free to price at "hat the mar(et "i!! *ear. 5o"ever4 they do
not a!"ays charge the fu!! price for a num*er of reasons. What is C)2 one of those reasons;
A) 2hey don7t "ant to attract competition.
B) 2hey "ant to penetrate the mar(et faster "ith a !o" price.
C) 2hey have a fear of government regu!ation.
D) 2hey "ant to encourage government regu!ations.
E) 2hey "ant to p!ease a !arge group of consumers.
Ans"er# D
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:%) 2he re!ationship *et"een the price charged and the resu!ting demand !eve! can *e sho"n as
the ________.
A) demand curve
B) varia*!e cost
C) target cost
D) *rea(,even pricing
E) experience curve
Ans"er# A
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:-) Consumers usua!!y perceive higher,priced products as ________.
A) out of reach for most peop!e
B) having high 1ua!ity
C) having high profit margins
D) having cost,*ased prices
E) *eing in the introductory stage of the product !ife cyc!e
Ans"er# B
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:6) Why do mar(eters consider prestige goods to *e an exception to the typica! demand curve;
A) 2he demand curve for prestige goods s!opes do"n"ard and to the right.
B) .ncreasing the price of prestige goods can ma(e them seem more desira*!e.
C) Demand for prestige goods often is greater than supp!y.
D) Prestige products such as diamonds4 sapphires4 and emera!ds are nonrene"a*!e resources.
E) Customers are more a"are of any price changes to prestige goods.
Ans"er# B
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:8) Which of the fo!!o"ing is true a*out the demand curve;
A) .t is used to i!!ustrate the effect of price on the 1uantity supp!ied.
B) .t is a!"ays graphica!!y depicted *y a straight !ine.
C) .t sho"s the 1uantity of product customers "i!! *uy in a mar(et during a period of time even
if other factors change.
D) .t usua!!y s!opes up"ard and to the right.
E) .t sho"s the re!ationship *et"een product demand and product price.
Ans"er# E
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::) When Ei*son Euitar Corporation4 !ong (no"n for its high 1ua!ity instruments4 !o"ered its
prices to compete more effective!y "ith Fapanese riva!s4 the company so!d fe"er guitars. Which
of the fo!!o"ing *est exp!ains this;
A) 2he Ei*son guitars "ere not as "e!! made as the Fapanese guitars.
B) 2he mar(et "as a!ready f!ooded "ith guitars.
C) 2he sound of the Ei*son guitar "as not as good as the Fapanese guitars.
D) Customers did not distinguish the superiority of the Ei*son guitar "hen it "as at a !o"er
price.
E) Customers had come to expect a higher price for a Ei*son guitar.
Ans"er# D
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:<) ________ descri*es ho" responsive demand "i!! *e to a change in price.
A) Price e!asticity
B) Brea(,even pricing
C) 2he demand curve
D) 2arget costing
E) upp!y
Ans"er# A
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:>) .f demand hard!y changes "ith a sma!! change in price4 "e say the demand is ________.
A) varia*!e
B) ine!astic
C) va!ue,*ased
D) at *rea(,even pricing
E) mar(et penetrating
Ans"er# B
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:&) .f demand changes great!y "ith a sma!! change in price4 "e say the demand is ________.
A) varia*!e
B) ine!astic
C) va!ue,*ased
D) e!astic
E) fixed
Ans"er# D
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<') Price e!asticity of demand is ________ divided *y ________.
A) percent change in 1uantity demanded@ percent change in price
B) demand@ price
C) percent change in price@ percent change in 1uantity demanded
D) the going price@ the as(ing price
E) none of the a*ove
Ans"er# A
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)*+ective# 1',6
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<1) Buyers are !ess price sensitive in a!! of the fo!!o"ing situations EDCEP2 ________.
A) "hen the product they are *uying is uni1ue
B) "hen the product they are *uying is in high demand
C) "hen su*stitute products are hard to find
D) "hen the tota! expenditure for a product is high re!ative to their income
E) "hen the product is a specia!ty product
Ans"er# D
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<%) 2he !ess ________ the demand4 the ________ it pays for the se!!er to raise the price.
A) determined@ !ess
B) e!astic@ more
C) e!astic@ !ess
D) constant@ more
E) none of the a*ove
Ans"er# B
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<-) Each of the fo!!o"ing economic factors can have a strong impact on a firm7s pricing strategy
EDCEP2 ________.
A) an economic *oom
B) the rese!!er7s reaction to price changes
C) an economic recession
D) inf!ation
E) interest rates
Ans"er# B
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<6) A company shou!d set prices that "i!! a!!o" ________ to receive a fair profit.
A) rese!!ers
B) producers
C) consumers
D) the e!der!y
E) competitors
Ans"er# A
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)*+ective# 1',6
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<8) When companies set prices4 the government and socia! concerns are t"o ________ affecting
pricing decisions.
A) externa! factors
B) interna! factors
C) economic conditions
D) demand curves
E) temporary inf!uences
Ans"er# A
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<:) Amos Goo(4 an Amish farmer4 se!!s organica!!y gro"n produce. )ften he "i!! trade some of
his produce for dairy products produced *y other Amish farmers. 2he sum of the va!ues that
others exchange is ca!!ed a ________.
A) price
B) cost,p!us price
C) dynamic price
D) common va!ue price
E) penetration price
Ans"er# A
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)*+ective# 1',1
<<) 2rader Foe7s offers an assortment of exc!usive gourmet products at impossi*!y !o" prices.
2hese prices are not !imited,time offers or specia! discounts. .nstead4 they ref!ect 2rader Foe7s
________ strategy.
A) everyday !o" pricing
B) cost,p!us pricing
C) dynamic pricing
D) va!ue,*ased pricing
E) cost,*ased pricing
Ans"er# A
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AACB# $ef!ective 2hin(ing
(i!!# App!ication
)*+ective# 1',%
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<>) Fimmy7s 5ard"are4 an independent !oca! retai!er4 is !osing *usiness to Wa!,0art. 2his is most
!i(e!y *ecause he cannot match Wa!,0art7s pricing strategy of ________.
A) EDAP
B) EBEB
C) fixed prices
D) negotiated pricing
E) s(imming pricing
Ans"er# A
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(i!!# App!ication
)*+ective# 1',%
<&) When 0cDona!d7s and other fast food restaurants offer Hva!ue menuH items at surprising!y
!o" prices4 they are using ________.
A) *rea(,even pricing
B) target profit pricing
C) va!ue pricing
D) cost,p!us pricing
E) *und!ing
Ans"er# C
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(i!!# App!ication
)*+ective# 1',%
>') Consumers "ho have !ess time and patience for "atching for supermar(et specia!s and
c!ipping coupons "ou!d most !i(e!y prefer ________.
A) varia*!e pricing
B) high,!o" pricing
C) EDAP
D) *rea(,even pricing
E) va!ue,*ased pricing
Ans"er# C
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(i!!# App!ication
)*+ective# 1',%
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>1) D*ox -:' decides to add a free su*scription to DB)D maga/ine "ith every game *ought in
an effort to differentiate its offering from P- games. 2his is an examp!e of ________.
A) good,va!ue pricing
B) add,on pricing
C) product,support pricing
D) va!ue,added pricing
E) cost,*ased pricing
Ans"er# D
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AACB# $ef!ective 2hin(ing
(i!!# App!ication
)*+ective# 1',%
>%) 2he !ong,run average cost curve 9A$AC) he!ps the producer understand "hich of the
fo!!o"ing;
A) .t sho"s ho" !arge a *usiness shou!d *e4 to *e most efficient.
B) .t dea!s main!y "ith competitors7 prices.
C) .t dea!s main!y "ith externa! factors.
D) a!! of the a*ove
E) none of the a*ove
Ans"er# A
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AACB# Ana!ytic (i!!s
(i!!# App!ication
)*+ective# 1',-
>-) Assume a manufacturer "ith fixed costs of I1''4'''4 a varia*!e cost of I1'4 and expected
sa!es of 8'4''' units "ants to earn a %',percent mar(up on sa!es. What is the manufacturer7s
mar(up price;
A) I16
B) I18
C) I1>
D) I1>.8'
E) none of the a*ove
Ans"er# B
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(i!!# App!ication
)*+ective# 1',-
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>6) Eenera! 0otors prices its automo*i!es to achieve a 18 to %' percent profit on its investment.
2his approach is ca!!ed ________.
A) va!ue,*ased pricing
B) going,rate pricing
C) cost,p!us pricing
D) !o",price image
E) target,profit pricing
Ans"er# E
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AACB# $ef!ective 2hin(ing
(i!!# App!ication
)*+ective# 1',-
>8) A company faces fixed costs of I1''4''' and varia*!e costs of I>.''Junit. 2hey p!an to
direct!y se!! their product to the mar(et for I1%.''. 5o" many units must they produce and se!!
to *rea( even;
A) %'4'''
B) %84'''
C) 6'4'''
D) 8'4'''
E) not enough information to ca!cu!ate
Ans"er# B
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(i!!# App!ication
)*+ective# 1',-
>:) Ecstasy Pharmaceutica!s faces fixed costs "ith their ne" drug of I14'''4'''. 2he company
se!!s the drug in *ott!es of 8' pi!!s for I1'.''. 2hey estimate that they must se!! %''4''' *ott!es
to *rea( even. What is the tota! cost to produce a *ott!e of 8' pi!!s;
A) I%.8'
B) I8.''
C) I:.''
D) I<.8'
E) not enough information to ca!cu!ate
Ans"er# B
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(i!!# App!ication
)*+ective# 1',-
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><) A manufacturer is trying to determine its *rea(,even vo!ume. With fixed costs of I1''4'''4 a
varia*!e cost of I1'4 and expected sa!es of 8'4''' units4 "hat shou!d the manufacturer7s unit cost
*e to *rea( even;
A) I1'
B) I1%
C) I1:
D) I%'
E) none of the a*ove
Ans"er# B
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>>) As a manufacturer decreases price4 ________ vo!ume increases.
A) target
B) *rea(,even
C) cost,p!us pricing
D) tota! cost
E) sa!es
Ans"er# B
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(i!!# App!ication
)*+ective# 1',-
>&) PKE surveyed the mar(et and identified an unserved segment of e!ectric tooth*rush mar(et.
?sing these resu!ts4 they created pin*rush. 2he unorthodox order of this mar(eting mix decision
is an examp!e of ________.
A) competition,*ased pricing
B) cost,p!us pricing
C) target costing
D) va!ue,*ased pricing
E) penetration pricing
Ans"er# C
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(i!!# App!ication
)*+ective# 1',6
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&') Poo!Pa( produces c!imate,contro! systems for !arge s"imming poo!s. 2he company7s
customers are more concerned a*out service support for maintaining a system than its initia!
price. Poo!Pa( may use this (no"!edge to *ecome more competitive through ________.
A) target costing
B) va!ue pricing
C) cost,p!us pricing
D) a nonprice position
E) s(imming pricing
Ans"er# D
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(i!!# App!ication
)*+ective# 1',-
&1) By p!edging to *e a !eader in providing c!ean4 rene"a*!e energy sources and deve!oping
products and services that he!p consumers protect the environment4 Ereen 0ountain Po"er
competes successfu!!y against HcheaperH *rands that focus on more price,sensitive
consumers.Ereen 0ountain Po"er has the firm *e!ief that even (i!o"att,hours can *e ________.
A) cost,p!us priced
B) a demand curve
C) differentiated
D) va!ue,*ased priced
E) none of the a*ove
Ans"er# C
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(i!!# App!ication
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&%) .n =in de! 0ar4 Chi!e4 there are a do/en stores specia!i/ing in se!!ing the same 1ua!ity of
seafood products on one street. An individua! store dare not charge more than the going price
"ithout the ris( of !osing *usiness to the other stores that are se!!ing the fish at a common price.
2his is an examp!e of "hat type of mar(et;
A) pure competition
B) monopo!istic competition
C) o!igopo!istic competition
D) pure monopo!y
E) socia!ist
Ans"er# A
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(i!!# App!ication
)*+ective# 1',6
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&-) Ascot 2ires has decided to decrease its prices. 2he company can expect that ________ for
their product "i!! increase.
A) cost,p!us pricing
B) va!ue,*ased pricing
C) demand
D) the experience curve
E) competition
Ans"er# C
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(i!!# App!ication
)*+ective# 1',6
&6) .f Canon Camera Company fo!!o"s a high,price4 high,margin strategy4 "hat "i!! competitors
such as Ci(on4 0ino!ta4 and Pentax most !i(e!y do;
A) 2hey "i!! go out of *usiness.
B) 2hey "i!! "ant to compete against Canon.
C) 2hey "i!! advertise !ess.
D) 2hey "i!! *und!e their products.
E) none of the a*ove
Ans"er# B
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AACB# Ana!ytic (i!!s
(i!!# App!ication
)*+ective# 1',6
&8) .f Canon Camera Company fo!!o"s a !o",price4 !o",margin strategy for a product4 "hat "i!!
competitors most !i(e!y do;
A) 2hey "i!! not *e a*!e to compete or may !eave the mar(et.
B) 2hey "i!! "ant to compete against Canon.
C) 2hey "i!! advertise !ess.
D) 2hey "i!! advertise more.
E) none of the a*ove
Ans"er# A
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(i!!# App!ication
)*+ective# 1',6
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&:) Companies are fortunate to have demand that is more ________ *ecause they may *e a*!e to
set higher prices.
A) e!astic
B) externa!
C) interna!
D) ine!astic
E) fixed
Ans"er# D
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(i!!# App!ication
)*+ective# 1',6
&<) .f demand fa!!s *y 1 percent "hen price is increased *y % percent4 then ________.
A) e!asticity is L1J%
B) demand is ine!astic
C) demand is e!astic
D) *uyers are not price sensitive
E) A and B
Ans"er# E
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(i!!# App!ication
)*+ective# 1',6
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Refer to the scenario below to answer the following questions.
A!den 0anufacturing produces sma!! (itchen app!iances*!enders4 hand mixers4 and
e!ectric s(i!!etsunder the *rand name Birst Eeneration. A!den attempts to target ne"!y"eds and
first,time home *uyers "ith this *rand.
.n considering that most young househo!ds have !imited financia! resources4 A!den has
attempted to engage in target costing. H.n doing this4H 0i!t A!den stated4 H"e have *etter contro!
over (eeping price right in !ine "ith customers.H
A!den manufactures a three,speed *!ender4 its top se!!er4 and a five,speed *!ender. 2he
hand mixers are manufactured in t"o sty!esa sma!! hand,he!d mixer "ith t"o rotating *eaters
and a simi!ar sty!e that comes "ith an optiona! stand and attached mixing *o"!. A!den7s
temperature,contro!!ed s(i!!ets are manufactured in one sty!e "ith three co!or options.
H)ur product offerings are narro"er4H 0i!t A!den added4 H*ut our !ine "or(ers (no" each
product !i(e the *ac( of their hands. 2his a!!o"s us to produce superior products "hi!e ho!ding
our prices !o".H
&>) 0i!t A!den says that his !ine "or(ers H(no" each product !i(e the *ac( of their hands4H and
that this (no"!edge he!ps the company (eep its prices !o". 2his indicates that A!den
0anufacturing most !i(e!y uses "hich of the fo!!o"ing strategies;
A) cost,p!us pricing
B) va!ue,*ased pricing
C) the experience curve
D) cost,*ased pricing
E) target profit pricing
Ans"er# C
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(i!!# App!ication
)*+ective# 1',%
&&) 0i!t A!den uses a target costing strategy. Which of the fo!!o"ing is he most !i(e!y to do in
executing this strategy;
A) *ase his price on competitors7 prices
B) use everyday !o" pricing
C) use a *rea(,even chart to determine pricing
D) start "ith customer,va!ue considerations
E) start *y determining the costs of a ne" product
Ans"er# D
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(i!!# App!ication
)*+ective# 1',6
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1'') .f A!den raises the price on the handhe!d mixer *y % percent and 1uantity demanded fa!!s *y
1' percent "hat is the price e!asticity of demand;
A) L8
B) L>
C) L1%
D) 8
E) 1%
Ans"er# A
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(i!!# App!ication
)*+ective# 1',6
1'1) When faced "ith price competition cutting prices is often not the *est ans"er.
Ans"er# 2$?E
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(i!!# App!ication
)*+ective# 1',1
1'%) Prices have a direct impact on a company7s *ottom !ine.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',1
1'-) Demand and consumer va!ue perceptions set the f!oor for prices.
Ans"er# BAAE
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(i!!# Concept
)*+ective# 1',%
1'6) Product costs set a f!oor to the price@ consumer perceptions of the product7s va!ue set the
cei!ing.
Ans"er# 2$?E
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)*+ective# 1',%
1'8) =a!ue,*ased pricing is *eing used "hen costs vary direct!y "ith the !eve! of product.
Ans"er# BAAE
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)*+ective# 1',%
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1':) =a!ue,*ased pricing uses the company7s perception of va!ue.
Ans"er# BAAE
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1'<) =a!ue,*ased pricing is the reverse of cost,*ased pricing.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',%
1'>) ?sing va!ue,*ased pricing4 a mar(eter "ou!d not design a product and mar(eting program
*efore setting the price.
Ans"er# 2$?E
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(i!!# App!ication
)*+ective# 1',%
1'&) EDAP is very simi!ar to high,!o" pricing.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',%
11') )verhead cost is another term for fixed cost.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',-
111) Cost,*ased pricing re!ies on consumer perception of va!ue to drive pricing.
Ans"er# BAAE
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(i!!# Concept
)*+ective# 1',-
11%) Average unit cost increases "ith accumu!ated production experience.
Ans"er# BAAE
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)*+ective# 1',-
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11-) An up"ard,s!oping experience curve is *eneficia! for a company.
Ans"er# BAAE
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(i!!# Concept
)*+ective# 1',-
116) 2he simp!est pricing method is cost,p!us pricing4 "hich invo!ves adding a standard mar(up
to the cost of the product.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',-
118) 0ar(up pricing is popu!ar *ecause prices tend to *e simi!ar and price competition is thus
minimi/ed.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',-
11:) 2arget profit pricing is used "hen a firm tries to determine the price at "hich it "i!! *rea(
even or ma(e the profit it is see(ing.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',-
11<) A *rea(,even chart sho"s the tota! cost and tota! revenue expected at various sa!es vo!ume
!eve!s.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',-
11>) Environmenta! e!ements are categori/ed as externa! factors that affect pricing decisions.
Ans"er# 2$?E
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)*+ective# 1',6
11&) .n a pure monopo!y4 the mar(et consists of one se!!er.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',6
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1%') Conregu!ated monopo!ies a!"ays charge the fu!! price *ecause they do not fear attracting
competition.
Ans"er# BAAE
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(i!!# App!ication
)*+ective# 1',6
1%1) 0ar(eters may !earn a fe" simp!e ru!es that app!y e1ua!!y to a!! price,demand re!ationships.
Ans"er# BAAE
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AACB# Ana!ytic (i!!s
(i!!# App!ication
)*+ective# 1',6
1%%) 2he demand curve sho"s the num*er of units the mar(et "i!! *uy in a given time period at
different prices that might *e charged. .n norma! cases4 the higher the price4 the !o"er the
demand.
Ans"er# 2$?E
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(i!!# Concept
)*+ective# 1',6
1%-) .f demand changes great!y "ith price4 "e say the demand is ine!astic.
Ans"er# BAAE
Diff# % Page $ef# -'6
(i!!# Concept
)*+ective# 1',6
1%6) 2he more e!astic the demand4 the more it pays for the se!!er to raise the price.
Ans"er# BAAE
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AACB# Ana!ytic (i!!s
(i!!# App!ication
)*+ective# 1',6
1%8) Consumers "i!! *ase their +udgments of a product7s va!ue on the prices that competitors
charge for simi!ar products.
Ans"er# 2$?E
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1%:) Pricing and price competition account for the num*er,one pro*!em facing many mar(eting
executives. What are some of the fre1uent pro*!ems that companies encounter;
Ans"er# 2he pricing environment changes at a fast pace4 and va!ue,see(ing customers have put
increased pricing pressure on many companies. 5o"ever4 companies are often too 1uic( to
reduce prices in order to get a sa!e rather than convincing *uyers that their products are "orth a
higher price. A company7s pricing4 in addition4 is often too cost,oriented rather than customer,
va!ue oriented. Companies have prices that are not revised often enough to ref!ect mar(et
changes. Another common pro*!em is pricing that does not ta(e the rest of the mar(eting mix
into account.
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1%<) Discuss the importance of consumer perceptions of va!ue and costs to setting prices.
Ans"er# Customer perceptions of va!ue set the upper !imit for prices4 and costs set the !o"er
!imit. 5o"ever4 in setting prices "ithin these !imits the company must then consider other
interna! and externa! factors. .nterna! factors affecting pricing inc!ude the company7s overa!!
mar(eting strategy4 o*+ectives4 and mar(eting mix4 as "e!! as other organi/ationa! considerations.
Externa! factors inc!ude the nature of the mar(et and demand4 competitors7 strategies and prices4
and other environmenta! factors.
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1%>) Exp!ain ho" *rea(,even ana!ysis can *e used for target profit pricing.
Ans"er# 2he firm determines the price at "hich it "i!! *rea( even. 2he firm can a!so add the
target profit to the fixed costs and then determine the ne"4 H*rea(,even point4H "hich no"
inc!udes the target profit. Pricing decisions can *e made *y examining "here the tota! revenue
and tota! cost curves intersect on a *rea(,even chart at different price points and sa!es vo!ume.
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1%&) .dentify and define the interna! factors affecting a firm7s pricing decisions.
Ans"er# 2he pricing strategy is !arge!y determined *y the company7s target mar(et and
positioning o*+ectives. Pricing decisions affect and are affected *y product design4 distri*ution4
and promotion decisions. Costs set the f!oor for the company7s price4 "hich must cover a!! the
costs of ma(ing and se!!ing the product4 p!us a fair rate of return. .n order to coordinate pricing
goa!s and decisions4 management must decide "ho "ithin the organi/ation is responsi*!e for
setting price.
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1-') Compare pure competition "ith o!igopo!istic competition.
Ans"er# ?nder pure competition4 the mar(et consists of many *uyers and se!!ers trading in a
uniform commodity. Co sing!e *uyer or se!!er has much effect on the going mar(et price. ?nder
o!igopo!istic competition4 the mar(et consists of fe" se!!ers "ho are high!y sensitive to each
other7s pricing and mar(eting strategies. 2he product can *e uniform or nonuniform. 2here are
fe" se!!ers *ecause it is difficu!t for ne" se!!ers to enter the mar(et. Each se!!er is a!ert to
competitors7 strategies and moves.
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1-1) Compare o!igopo!istic competition "ith a pure monopo!y.
Ans"er# ?nder o!igopo!istic competition4 the mar(et consists of a fe" se!!ers "ho are high!y
sensitive to each other7s pricing and mar(eting strategies. 2here are fe" se!!ers *ecause it is
difficu!t for ne" se!!ers to enter the mar(et. ?nder a pure monopo!y4 the mar(et consists of one
se!!er. Pricing is hand!ed different!y in each case. 2he se!!er may *e a government monopo!y4 a
private nonregu!ated monopo!y4 or a private regu!ated monopo!y.
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1-%) Descri*e "hat a demand curve is and exp!ain ho" it he!ps *usinesses.
Ans"er# .t estimates consumer demand at different prices. .n a monopo!y4 the demand curve
sho"s the tota! mar(et demand resu!ting from different prices. .f the company faces competition4
its demand at different prices "i!! depend on "hether competitors7 prices stay constant or change
"ith the company7s o"n prices.
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1--) What does price e!asticity revea! a*out a product;
Ans"er# Price e!asticity is a measure of the sensitivity of demand to changes in price. .f demand
hard!y changes "ith a sma!! change in price4 "e say the demand is ine!astic. .f demand changes
great!y4 "e say the demand is e!astic.
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1-6) 2he company must consider the impact its prices "i!! have on rese!!ers. .dentify three "ays
the company can he!p rese!!ers.
Ans"er# 2he company4 first of a!!4 shou!d set prices that give rese!!ers a fair profit. 2he company
shou!d a!so encourage their support. Bina!!y4 the company shou!d he!p rese!!ers to se!! the
product effective!y.
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1-8) When setting prices4 the company must consider its externa! environment. Descri*e four
parts of the externa! environment and ho" they affect *usinesses.
Ans"er# Economic conditions affect *oth the costs of producing a product and consumer
perceptions of the product7s price and va!ue. 2he company shou!d encourage and support
rese!!ers and he!p them to se!! the product effective!y. 2he government4 in the form of !oca!4 state4
and federa! !a"s4 is another important inf!uence on pricing decisions. ocia! concerns impact
pricing4 especia!!y "hen a company7s short,term sa!es4 mar(et share4 and profit goa!s may have
to *e tempered *y *roader societa! considerations.
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1-:) 5o" important is price among the e!ements of the mar(eting mix;
Ans"er# .n recent decades4 nonprice factors have gained increasing importance. 5o"ever4 price
sti!! remains one of the most important e!ements determining a firm7s mar(et share and
profita*i!ity.
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1-<) Why is price considered to *e one of the most f!exi*!e e!ements of the mar(eting mix;
Ans"er# Price can *e changed 1uic(!y.
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1->) Exp!ain the concept of a price f!oor.
Ans"er# A price f!oor is the !o"est price charged at "hich the company sti!! earns some profits.
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1-&) Exp!ain the concept of a price cei!ing.
Ans"er# A price cei!ing is the highest price charged at "hich there is sti!! some consumer
demand.
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16') What must a company using va!ue,*ased pricing find out a*out its customers;
Ans"er# 2hey must determine the specific va!ue that individua! *uyers assign to different
competitive offers.
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161) Exp!ain good,va!ue pricing.
Ans"er# With good,va!ue pricing4 a mar(eter offers +ust the right com*ination of 1ua!ity and
good service at a fair price.
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16%) What must a firm do to retain pricing po"er;
Ans"er# 2o retain pricing po"er4 a firm must retain of *ui!d the va!ue of its mar(et offering.
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16-) What costs ma(e up a product7s tota! cost;
Ans"er# Bixed costs and varia*!e costs ma(e up tota! cost.
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166) Exp!ain the significance of a do"n"ard,s!oping experience curve.
Ans"er# Cot on!y "i!! the company7s unit production cost fa!!4 *ut it "i!! fa!! faster if the
company ma(es and se!!s more during a given time period.
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168) A mar(eter7s fixed costs are I6''4'''4 the varia*!e cost is I1:4 and they expect the product
to se!! for I%6. What is their *rea(,even point in units;
Ans"er# 2he *rea(,even point in units is 8'4''' units.
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16:) A mar(eter7s fixed costs are I6''4'''4 the varia*!e cost is I1:4 and they expect the product
to se!! for I%6. What is their *rea(,even point in do!!ar sa!es;
Ans"er# 2he *rea(,even point in do!!ar sa!es is I14%''4'''.
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16<) A mar(eter7s fixed costs are I6''4'''4 the varia*!e cost is I1:4 and they expect their product
to se!! for I%6. .f the mar(eter has sa!es of I1466'4'''4 "hat is their profit on this product;
Ans"er# 2he profit is I>'4'''.
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16>) Who typica!!y sets prices in sma!! companies; .n !arge companies;
Ans"er# 2op management sets prices in sma!! companies4 "hereas divisiona! or product !ine
managers typica!!y set prices in !arge companies.
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16&) Exp!ain a pure monopo!y.
Ans"er# 2he mar(et consists of one se!!er that dominates the mar(et.
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18') .f demand is e!astic4 "i!! se!!ers consider !o"ering their prices; Exp!ain.
Ans"er# Mes. A !o"er price "i!! produce more needed revenue4 as consumers "i!! respond to the
change in price and *uy more.
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