Deck 13: Pricing

Question 1

Which one of the following statements is correct?

A)A price setter must accept the prices set by other players in the market.
B)A price taker must pay the price demanded by a supplier of goods and services.
C)A price setter is unable to influence the price of goods or services.
D)A price taker must set the same prices as those determined by more powerful players in the market.

Answer 1

A price taker must set the same prices as those determined by more powerful players in the market.

Question 2

Susie and Omar operate a hair-dressing business.They are about to start offering a hair-straightening service using imported Japanese technology, and they need to set a selling price for the service that incorporates their usual 60% profit mark-up on variable costs.The materials involved in the process cost £3.30, and a royalty is payable to the holder of the Japanese patent of £2 per treatment.The treatment requires the attention of a senior stylist whose hourly rate of pay is £8.50.Each treatment requires 3.5 hours of the stylist's time. What is the projected selling price for one hair-straightening treatment (to the nearest £)?

A)£53
B)£56
C)£88
D)£83

Answer 2

£56

Question 3

Which one of the following statements is correct? A product or service that is sold at less than cost in order to attract customer attention to the supplier's range of products is known as:

A)a loss leader
B)a targeted product or service
C)a unique product or service
D)a cost leader

Answer 3

a loss leader

Question 4

Otis Fennell Limited sets prices for its goods as follows: direct costs incurred plus a profit mark up.Which of the following describes this system of price setting?

A)variable cost-based pricing
B)target pricing
C)market-based pricing
D)oligopolistic pricing

Question 5

The following graph shows the relationship between price and quantity at three points. Which one of the following is the correct label for the sloping line joining the three points?

A)Contribution
B)Elasticity
C)Demand
D)Profit

Question 6

Which one of the following statements is correct? Target pricing:

A)is possible only where a virtual monopoly for a product exists
B)is undertaken by price setters in a market
C)involves establishing a price by reference to what the market will bear
D)is an alternative way of describing cost-plus pricing

Question 7

Which one of the following statements is correct? A loss leader:

A)is a product or service provided at less than cost, in order to attract customer attention
B)is a product or service that makes a greater loss to its provider than any other product or service
C)describes the principal supplier of a product or service in a market where most suppliers make losses
D)is none of the above

Question 8

Which one of the following statements is correct?

A)Monopolistic conditions are helpful to the consumer
B)Monopolists tend to be price takers
C)A monopolist is able to raise prices to a high level
D)Monopolies are generally regarded favourably by competition regulators

Question 9

Spellman Productions Limited applies cost-based pricing to its range of products.A new product, the SP 162, is due to start production and the directors have met to determine a selling price for it. The new product's cost card includes the following details for each unit of SP 162:
The directors use variable cost based pricing, applying a standard mark up of 36%.
What is the selling price of each SP 162 unit (to the nearest penny)?

A)£53.18
B)£31.55
C)£39.38
D)£34.27

Question 10

Which of the following statements about olipolistic market conditions are correct?
A.An oligopoly exists where there are few suppliers in the market for a supply of a particular good or service.
B. Where oligopolistic market conditions exist, there is a danger of reduced competition and stagnation of prices.

A)Both of them
B)B only
C)Neither of them
D)A only

Question 11

Which one of the following statements is correct? Demand is described by economists as elastic where:

A)Customers place a high value on the product
B)Demand is highly sensitive to changes in price
C)Prices can rise substantially without affecting demand
D)Demand for the product is relatively insensitive to price

Question 12

Peel and Parsley Limited applies cost-based pricing to its products.A new product, the PP 773, is due to start production and the sales and finance directors have met to discuss its selling price. Variable costs of production total £126.50.Fixed production overheads in respect of the production capacity devoted to the PP 773 are estimated at £663 000 for the coming financial year.Overhead is absorbed per unit of product and the budget production of the PP 773 for the year is 6250 units.
The company requires a profit mark-up of 36% on total cost.What is the cost-plus selling price for each PP 773 (to the nearest penny)?

A)£363.41
B)£278.12
C)£316.31
D)£172.04

Question 13

Zigismond Products Limited applies cost-plus pricing to its range of products.A new product, the ZP 131, is due to start production and the directors have met to determine a selling price for it. Variable costs of production total £16.50.Fixed production overheads in respect of the production capacity devoted to the new product are estimated at £366 000 for the coming financial year.Overhead is absorbed using direct labour hours.Each ZP 131 requires 1.5 direct labour hours.A total of 96 000 direct labour hours will be available for the production of the ZP 131.
The company requires a profit mark-up of 25.5% on total cost.What is the cost-plus selling price for each ZP 131 unit (to the nearest penny)?

A)£27 89
B)£20.71
C)£25.49
D)£26.43

Question 14

Which one of the following statements is correct? A cartel is:

A)an arrangement put in place by competition regulators in order to create fair competition between suppliers of goods or services
B)another word for oligopoly
C)a fine levied for infringement of fair competition regulations in the UK
D)a price-fixing arrangement amongst suppliers of goods or services

Question 15

Which one of the following statements is correct? Demand is described by economists as inelastic where:

A)As prices increase demand is likely to fall
B)Customers are relatively indifferent to the product
C)Customers place a high value on the product
D)Demand is highly sensitive to changes in price