Question 1

As output increases,a firm's average fixed cost probably will go down.

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 2

If a firm's average variable cost is constant per unit,then the firm's average cost decreases continually as output increases because average fixed cost decreases continually.

Accepted Answer

Although the average variable cost remains the same, average cost decreases continually and this is because average fixed cost is decreasing.

Question 3

Even if a firm's average variable cost remains constant per unit,its average cost will increase as output increases.

Accepted Answer

Although the average variable cost remains the same, average cost decreases continually.

Question 4

A firm's total cost increases only when its variable cost increases.

Accepted Answer

Changes in total cost depend on variations in total variable cost, since total fixed cost stays the same.

Question 5

If a manager sells more than was expected when average-cost pricing was used to set a price,the firm will lose money.

Accepted Answer

Average-cost pricing works well if the firm actually sells the quantity it used to set the average-cost price. If sales are much higher than expected, then profits may be very good.

Question 6

Changes in total cost depend on variations in total variable cost,since total fixed cost stays the same.

Accepted Answer

Changes in total cost depend on variations in total variable cost, since total fixed cost stays the same.

Question 7

Total fixed costs do not change when output increases.

Accepted Answer

Total fixed cost is the sum of those costs that are fixed in total, no matter how much is produced.

Question 8

A firm's average fixed cost increases as its output increases.

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 9

At zero output,total variable cost is zero.

Accepted Answer

At zero output, total variable cost is zero.

Question 10

Ignoring demand is the major weakness of average-cost pricing.

Accepted Answer

Ignoring demand is the major weakness of average-cost pricing.

Question 11

A major advantage of average-cost pricing is that it assumes costs remain constant at different levels of output.

Accepted Answer

The basic problem with the average-cost approach is that it doesn't consider cost variations at different levels of output.

Question 12

Break-even analysis evaluates whether the firm will be able to cover all its costs with a particular price.

Accepted Answer

Break-even analysis evaluates whether the firm will be able to break even, that is, cover all its costs with a particular price.

Question 13

An advantage of average-cost pricing is that it considers competitors' costs and prices.

Accepted Answer

A danger of average-cost pricing is that it ignores competitors' costs and prices.

Question 14

Average-cost pricing works best in situations where demand conditions do not change a lot.

Accepted Answer

When demand conditions are changing, average-cost pricing is even more risky.

Question 15

Average fixed costs are lower when a large quantity is produced.

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 16

A firm's average variable cost (per unit)is obtained by dividing the total fixed cost by the total variable cost.

Accepted Answer

Average variable cost (per unit) is obtained by dividing total variable cost by the related quantity.

Question 17

Average fixed cost goes down as output decreases.

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 18

When setting prices,the marketing manager should consider the firm's demand curve,or else the price may not even cover the firm's total cost.

Accepted Answer

Unless the firm's demand curve is considered, the marketing manager may set a price that doesn't even cover a firm's total cost.

Question 19

Average-cost pricing works well if the firm actually sells the quantity which was used in setting the price,but losses may result if actual sales are much higher than were expected-due to higher total variable costs.

Accepted Answer

Average-cost pricing works well if the firm actually sells the quantity it used to set the average-cost price. Losses may result, however, if actual sales are much lower than expected.

Question 20

Cost-oriented selling price per unit is obtained by adding a firm's desired profit per unit to the average total cost.

Accepted Answer

Refer to Exhibit 18-7. Cost-oriented pricing requires an estimate of the total number of units to be sold. That estimate determines the average fixed cost per unit and thus the average total cost. Then the firm adds the desired profit per unit to the average total cost to get the cost oriented selling price.

Quiz 20: Price Setting in the Business World

As output increases,a firm's average fixed cost probably will go down.

If a firm's average variable cost is constant per unit,then the firm's average cost decreases continually as output increases because average fixed cost decreases continually.

Even if a firm's average variable cost remains constant per unit,its average cost will increase as output increases.

A firm's total cost increases only when its variable cost increases.

If a manager sells more than was expected when average-cost pricing was used to set a price,the firm will lose money.

Changes in total cost depend on variations in total variable cost,since total fixed cost stays the same.

Total fixed costs do not change when output increases.

A firm's average fixed cost increases as its output increases.

At zero output,total variable cost is zero.

Ignoring demand is the major weakness of average-cost pricing.

A major advantage of average-cost pricing is that it assumes costs remain constant at different levels of output.

Break-even analysis evaluates whether the firm will be able to cover all its costs with a particular price.

An advantage of average-cost pricing is that it considers competitors' costs and prices.

Average-cost pricing works best in situations where demand conditions do not change a lot.

Average fixed costs are lower when a large quantity is produced.

A firm's average variable cost (per unit)is obtained by dividing the total fixed cost by the total variable cost.

Average fixed cost goes down as output decreases.

When setting prices,the marketing manager should consider the firm's demand curve,or else the price may not even cover the firm's total cost.

Average-cost pricing works well if the firm actually sells the quantity which was used in setting the price,but losses may result if actual sales are much higher than were expected-due to higher total variable costs.

Cost-oriented selling price per unit is obtained by adding a firm's desired profit per unit to the average total cost.