Question 1

Delta Airlines prices its tickets so that it is less expensive to travel between midnight and 5:00a.m. than during the day, when there is heavy business travel. This illustrates ____ pricing.
A) cost-plus
B) demand-based
C) competition-based
D) secondary markup
E) seasonal

Accepted Answer

Delta Airlines is using demand-based pricing by offering lower prices during times when there is lower demand (midnight to 5:00 a.m.) and higher prices during times when there is higher demand (daytime, heavy business travel).

Question 2

William Clark wants to know his breakeven point. His selling price is $20 per unit, his fixed costs are $6,000, and the variable costs per unit are $6. What is his breakeven quantity?
A) 430 units
B) 428.6 units
C) 300 units
D) 425.6 units
E) 50 units

Accepted Answer

The breakeven point in units can be calculated using the formula: Breakeven Point = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Plugging in the given values: $6,000 / ($20 - $6) = $6,000 / $14 = 428.57 units. Since the breakeven quantity must be a whole number, it's rounded to 428.6 units for the purpose of this calculation, but in practical scenarios, you would need to sell 429 units to fully cover the fixed costs.

Question 3

A hotel room in New Orleans during Mardi Gras costs considerably more than it would during the following week. This is an example of
A) status-quo pricing.
B) cost-based pricing.
C) price differentiation.
D) variable pricing.
E) price adjustment.

Accepted Answer

This is an example of price differentiation, where the hotel is charging different prices for the same room based on a variable, in this case, the time of the year (Mardi Gras vs. non-Mardi Gras period).

Question 4

For any product, the breakeven quantity is the
A) number sold over fifty units.
B) number sold such that costs equal revenues.
C) total number produced to equal the total resources available to the producer.
D) number of products needed to be sold in order to make a reasonable profit.
E) dollar volume of total sales.

Accepted Answer

The breakeven quantity is the number of units sold that equals total costs, meaning that there is no profit or loss at that quantity.

Question 5

Competition-based pricing is
A) used when costs and revenues are considered secondary to competitors' prices.
B) not useful as a method of increasing or maintaining market share.
C) of little use if the competing products are homogeneous.
D) not able to increase sales.
E) most often used when competing products are homogeneous.

Accepted Answer

Competition-based pricing is used when costs and revenues are considered secondary to competitors' prices.

Question 6

If Alberto purchases a tie from JCPenney for $30, that $30 represents JCPenney's ____ from the sale.
A) income
B) cost
C) proceeds
D) breakeven amount
E) revenue

Accepted Answer

Revenue is the total amount of money received from sales, so the $30 represents JCPenney's revenue from selling the tie. Income, proceeds, and breakeven amount are all related to profit, which cannot be determined without knowing the cost of the tie. Therefore, choice E is the best answer.

Question 7

Demand-based pricing, unlike cost-based pricing, places firms in a better position to
A) attain higher profit levels.
B) estimate demand easily and accurately.
C) perform breakeven analysis.
D) calculate price based on intangible benefits.
E) penetrate the market quickly.

Accepted Answer

Demand-based pricing allows firms to adjust prices according to the level of demand for their product or service, giving them the opportunity to charge more for highly demanded goods or services. This can result in higher profit levels for the firm compared to cost-based pricing, which only considers the production costs.

Question 8

Price differentiation is
A) a form of competition-based pricing.
B) a form of cost-based pricing.
C) a form of demand-based pricing.
D) focused on achieving fewer sales but at higher prices.
E) focused on selling different goods for different prices.

Accepted Answer

Price differentiation is a form of demand-based pricing, where prices are set based on consumers' willingness to pay for a product or service. The idea is to sell the same product to different customers at different prices, based on their perceived value of the product. This can help a company maximize revenue and profits by capturing more of the consumer surplus. Price differentiation can involve different pricing strategies, such as segmenting the market, offering discounts to specific customer groups, providing different product features, or using dynamic pricing algorithms. Therefore, options A, B, D, and E are incorrect.

Question 9

The strategy of charging the highest possible price for a product during the introduction stage of its life-cycle is known as
A) penetration pricing.
B) price skimming.
C) prestige pricing.
D) sample pricing.
E) odd pricing.

Accepted Answer

Price skimming involves setting a high price for a new product during the introduction stage. This strategy is often used when products have unique features or benefits that differentiate them from competitors and allow for a premium price. As demand for the product increases over time, the price can be gradually lowered to attract more price-sensitive customers.

Question 10

The sum of the fixed costs and the variable costs of producing a certain number of units is called the
A) cost of goods sold.
B) equilibrium cost.
C) total cost.
D) breakeven cost.
E) total operating expense.

Accepted Answer

The sum of fixed and variable costs is known as total cost. Cost of goods sold only includes variable costs directly associated with producing the goods, not fixed costs. Equilibrium cost refers to the price point at which supply and demand are equal. Breakeven cost is the point at which total revenue equals total costs, so it is related but not a direct answer. Total operating expense includes all expenses related to running a business, not just production costs.

Question 11

If Macy's department store managers looked at Dillard's department store prices for identical national brands and, based on that information, decided to advertise a sale on those products, they would be exercising which pricing method?
A) Competition-based
B) Demand-based
C) Cost-based
D) Premium
E) Penetration

Accepted Answer

This is because Macy's is basing their prices on the prices of their competitors, in this case, Dillard's. This is known as competition-based pricing.

Question 12

The total amount received from the sales of a product is referred to as
A) total revenue.
B) the breakeven quantity.
C) variable sales.
D) market revenue.
E) marginal revenue.

Accepted Answer

Total revenue refers to the total amount received from the sales of a product. The other options are not correct definitions of total revenue.

Question 13

Costs that are incurred no matter how many units of a product are produced or sold are called
A) operating expenses.
B) overhead.
C) variable costs.
D) fixed costs.
E) inflexible costs.

Accepted Answer

Fixed costs are costs that do not vary in relation to production or sales volume. Examples of fixed costs include rent, salaries and insurance premiums.

Question 14

Price differentiation attempts to sell
A) different products with different features at the same price.
B) identical products at different times at different prices.
C) products at lower prices, due to economies of scale unintentionally resulting in lower net income for the company.
D) products to customers based on their ability to pay.
E) all products at different prices.

Accepted Answer

Price differentiation refers to selling identical products at different prices, depending on various factors such as time, location, and customer segments. This practice helps companies to increase their profits by charging higher prices from customers who are willing to pay more, while still attracting price-sensitive customers with lower prices. Option A is incorrect as it refers to product differentiation, where companies offer different products with varying features at different prices. Option C is also incorrect as economies of scale do not necessarily result in lower net income for the company. Option D is a form of price discrimination, which may not always be legal or ethical. Option E is too broad and does not provide any specific information about the pricing strategy adopted by the company.

Question 15

Costs that depend on the number of units produced are called
A) markup.
B) operational expenses.
C) fixed costs.
D) variable costs.
E) overhead.

Accepted Answer

Variable costs are expenses that fluctuate in direct proportion to the amount of units produced. Examples of variable costs include raw materials, production labor, and shipping expenses. As more units are produced, variable costs will increase accordingly.

Question 16

The number of units that must be sold for the total revenue to equal the total cost is called the ____ quantity.
A) breakeven
B) stabilization
C) intersect
D) parity
E) equalization

Accepted Answer

The term used to describe the point where total revenue equals total cost is called the breakeven point. At this point, there is neither profit nor loss. It is a crucial point for businesses to calculate as it determines the minimum number of units that need to be sold to cover all costs.

Question 17

Hallmark cards develops a new line of cards that have a total cost of $200,000 and a price of $3 each. If it sells 20,000 cards the first month, what is its total revenue?
A) $60,000
B) $600,000,
C) $400,000.
D) $140,000,.
E) $140,000

Accepted Answer

Total revenue is calculated by multiplying the price per item by the number of items sold. Therefore, $3 per card * 20,000 cards = $60,000.

Question 18

AT&T charges different rates for long-distance service depending on time of day and distance of the call. This pricing method is called ____ pricing.
A) geographic
B) odd
C) discriminatory
D) demand-based
E) segmented

Accepted Answer

The pricing method described here is based on demand, as the rates vary depending on the time of day (demand fluctuations) and distance of the call. This is also known as distance-sensitive pricing or peak/off-peak pricing. The other options (geographic, odd, discriminatory, segmented) do not accurately describe the pricing method in question.

Question 19

Philip James asks you to calculate the breakeven point for him. You need which information from him to do so?
A) Dollar values for all assets and owners' equity
B) Fixed costs, operating expenses, and net income
C) Dollar values for all assets and all liabilities
D) Unit costs and fixed costs
E) Variable costs per unit, fixed costs, and unit selling price

Accepted Answer

To calculate the breakeven point, we need to know the amount of revenue needed to cover all of the costs. This requires the knowledge of the fixed costs and variable costs per unit as well as the unit selling price. The other options do not provide the necessary information for a breakeven analysis.

Question 20

Raw materials are an example of a firm's ____ costs.
A) selling
B) operating
C) fixed
D) overhead
E) variable

Accepted Answer

Raw materials are a variable cost because they directly vary with the level of production. The more the firm produces, the more raw materials it will need to purchase, and vice versa. Selling costs are related to marketing and distribution of the firm's products, while operating costs include various expenses such as rent, utilities, wages, and depreciation. Fixed costs are expenses that do not vary with the level of production, such as rent for a factory, and overhead includes indirect expenses such as administrative salaries and office supplies.

Quiz 13: A: Creating and Pricing Products That Satisfy Customers

Delta Airlines prices its tickets so that it is less expensive to travel between midnight and 5:00a.m. than during the day, when there is heavy business travel. This illustrates ____ pricing.

William Clark wants to know his breakeven point. His selling price is $20 per unit, his fixed costs are $6,000, and the variable costs per unit are $6. What is his breakeven quantity?

A hotel room in New Orleans during Mardi Gras costs considerably more than it would during the following week. This is an example of

For any product, the breakeven quantity is the

Competition-based pricing is

If Alberto purchases a tie from JCPenney for $30, that $30 represents JCPenney's ____ from the sale.

Demand-based pricing, unlike cost-based pricing, places firms in a better position to

Price differentiation is

The strategy of charging the highest possible price for a product during the introduction stage of its life-cycle is known as

The sum of the fixed costs and the variable costs of producing a certain number of units is called the

If Macy's department store managers looked at Dillard's department store prices for identical national brands and, based on that information, decided to advertise a sale on those products, they would be exercising which pricing method?

The total amount received from the sales of a product is referred to as

Costs that are incurred no matter how many units of a product are produced or sold are called

Price differentiation attempts to sell

Costs that depend on the number of units produced are called

The number of units that must be sold for the total revenue to equal the total cost is called the ____ quantity.

Hallmark cards develops a new line of cards that have a total cost of $200,000 and a price of $3 each. If it sells 20,000 cards the first month, what is its total revenue?

AT&T charges different rates for long-distance service depending on time of day and distance of the call. This pricing method is called ____ pricing.

Philip James asks you to calculate the breakeven point for him. You need which information from him to do so?

Raw materials are an example of a firm's ____ costs.