Question 1

When determining markup as a percentage of cost, divide the markup amount by

Accepted Answer

Markup as a percentage of cost is calculated by dividing the markup amount by the cost of the item being marked up. Dividing by the price would give you the markup as a percentage of the selling price, which is a different calculation.

Question 2

The fact that senior citizens are charged a lower price at movie theaters than younger adults is an example of ____ pricing.

Accepted Answer

Differential pricing refers to the practice of charging different prices for similar goods or services to different customers. In this case, senior citizens are being charged a lower price than younger adults, which is an example of differential pricing. The other options do not accurately describe this scenario.

Question 3

Amtrak is considering two pricing strategies for its service. One is to price its train tickets so that it is less expensive to travel on weekends than during the week when there is heavy business travel, which illustrates _____ pricing. The second is to price its train tickets so that the further away the travel date, the greater the discount, which is best described as _____.

Accepted Answer

The first pricing strategy mentioned, where Amtrak prices its train tickets based on the demand (i.e. weekend vs weekday travel), is an example of demand-based pricing. The second pricing strategy mentioned, where Amtrak prices its train tickets based on the time of travel (i.e. the further away the travel date, the greater the discount), is an example of differential pricing. Therefore, the best choice is B, demand-based; differential pricing.

Question 4

Which of the following statements about markup pricing is correct?

Accepted Answer

The use of similar markups among competitors can create price stability and reduce price competition, since all competitors are pricing their products similarly.

Note: the other answer choices are incorrect. Markup pricing is a commonly used and convenient pricing method, it is not a demand-based pricing method, and using markups does not necessarily make pricing more time-consuming or difficult. Also, Markup pricing generally results in a higher price when demand is low and a lower price when demand is high, as opposed to the statement given in choice C.

Question 5

A problem associated with ____ is that consumers can predict when prices will be lowered and delay purchases until that time.

Accepted Answer

Periodic discounting refers to the practice of offering discounts on a regular basis, such as seasonal sales, clearance events, or holiday promotions. This type of pricing strategy encourages customers to make purchases during the promotional periods, but it also creates an incentive for them to delay purchases until the next discount period. As a result, businesses must strike a balance between offering attractive discounts to motivate immediate purchases and avoiding a situation where customers perceive the discounts as predictable or routine.

Question 6

When products in an industry are relatively homogeneous and price is a key purchase consideration,

Accepted Answer

When products are relatively homogeneous and price is a key purchase consideration, competition-based pricing becomes more important. This is because customers are likely to compare prices between competitors and choose the option with the lowest price. Firms must therefore set prices based on what their competitors are charging.

Question 7

If General Motors determines that it wants to sell 200,000 Chevrolet Acadias and sets the price at $29,500 because it knows that at that price it will reach that goal, the firm would be using a ____ pricing method.

Accepted Answer

The given scenario suggests that General Motors is using a demand-based pricing method, as it is setting the price based on the desired sales volume. This is consistent with the features of a demand-oriented pricing strategy, where prices are set based on the demand for the product or the quantity that the company wants to sell. The other pricing methods listed may involve factors beyond just the desired sales volume, such as production costs or competitor prices.

Question 8

If local Shell gasoline stations look at BP stations' prices as the primary method of determining its own prices, Shell is using

Accepted Answer

Competition-based pricing strategy involves setting prices based on competitors' strategies, prices, costs, and market offerings. In this scenario, Shell is using competition-based pricing by primarily looking at BP stations' prices to determine its own, indicating that it considers competitors' prices more important than its own costs.

Question 9

Kohl's pays $16.50 for a six-ounce bottle of cologne and sells it for $25.95. Its markup as a percentage of cost is approximately ____% for this product.

Accepted Answer

To find the markup as a percentage of cost, we need to first find the markup. Markup = selling price - cost price.

Markup = $25.95 - $16.50 = $9.45

Now, we can find the markup percentage by using the formula:

Markup percentage = (Markup / Cost price) x 100

Markup percentage = ($9.45 / $16.50) x 100

Markup percentage = 0.5727 x 100

Markup percentage = 57.27%

So, the answer is D, approximately 57%.

Question 10

Competition-based pricing is

Accepted Answer

Competition-based pricing involves setting prices based on what competitors are charging for similar products. This approach assumes that customers will compare prices across multiple options and choose the most affordable one. In some cases, the cost of production or revenue goals may take a backseat to the prices set by competitors in the industry. Therefore, option A is the best choice.

Question 11

Executives in Japan decided to price Lexus luxury cars in the United States at $55,000 while pricing them at $66,000 in their own country. This is an example of

Accepted Answer

Secondary-market pricing involves setting different prices in different markets or segments for the same product, which is what the executives are doing by pricing Lexus luxury cars differently in the United States and Japan.

Question 12

Maria recently put her house on the market at an asking price of $260,000. She realizes, however, that in order to sell the house, she may have to use

Accepted Answer

Negotiated pricing would allow Maria to work with potential buyers to come to a mutually acceptable price for the house. This may be necessary if the market conditions are not ideal for selling at the original asking price. The other options (A, B, D, E) are not applicable or necessary in this situation.

Question 13

During July and August, Lakewood Links Golf Course, located in South Carolina, offers weekday rates of $13 for a round of golf with a cart. During the rest of the year, the weekday rates are between $25 and $35. This is an example of the use of

Accepted Answer

The answer of During July and August, Lakewood Links Golf...

Question 14

A retailer of Real Dry deodorant prices it at $2.00; it costs the retailer $1.40. What is the approximate markup as a percentage of selling price?

Accepted Answer

The markup is calculated as (Selling Price - Cost) / Selling Price. Here, it is ($2.00 - $1.40) / $2.00 = $0.60 / $2.00 = 0.30, which is 30%.

Question 15

Markup is measured either as a percentage of ____ or a percentage of ____.

Accepted Answer

Markup is typically calculated as a percentage of the cost or the selling price. Option A presents the two most common ways of measuring markup.

Question 16

The federal government often uses ____ pricing when it grants defense contracts.

Accepted Answer

The federal government often uses cost-plus pricing when it grants defense contracts. In this type of pricing, the contractor is reimbursed for its costs incurred and then paid a profit margin or percentage on top of that. This allows the government to control costs, while still incentivizing the contractor to complete the project efficiently.

Question 17

Wet Seal, a retailer of swimwear, employs a commonly used cost-based pricing method called

Accepted Answer

The answer of Wet Seal, a retailer of swimwear, employs...

Question 18

If PepsiCo sets its twelve-pack price to match the price charged by Coca-Cola, Pepsi is using which of the following pricing methods?

Accepted Answer

PepsiCo is using competition-based pricing by setting its price to match that of Coca-Cola.

Question 19

If a product is priced based on how many or how few people want it at a particular time and place, ____ pricing is being used.

Accepted Answer

Demand-based pricing is based on the law of supply and demand, which states that the price of a good will increase as demand for it increases and decrease as demand for it decreases. Therefore, if a product is priced based on how many or how few people want it at a particular time and place, demand-based pricing is being used.

Question 20

The "White Sale" that many department stores have every year a few weeks after Christmas is an example of

Accepted Answer

The "White Sale" is a periodic discounting strategy where retailers offer discounts on a particular category of products during a specific time period every year.

Quiz 20: Setting Prices