Question 1

An office supply store can buy an office chair for $30.If the store owner sells the office chair for $45,what is the markup based on the selling price?
A) 25 percent
B) 30 percent
C) 50 percent
D) 15 percent

Accepted Answer

The markup is the difference between the selling price and the cost price as a percentage of the cost price.

Markup = ((Selling price - Cost price) / Cost price) * 100

Here, the cost price is $30 and the selling price is $45.

Markup = ((45 - 30) / 30) * 100
       = (15 / 30) * 100
       = 50 percent

Therefore, the markup based on the selling price is 50 percent.

Question 2

Aviation fuel for WestJetLite Airlines represents what type of cost?
A) inelastic
B) marginal
C) fixed
D) variable

Accepted Answer

Aviation fuel cost is a variable cost as its expense increases or decreases with the number of flights or hours flown by airplanes.

Question 3

A firm develops a satisfactory product/service,evaluates the total expense of the product/service,and sets a price that covers all expenses and a target profit.This type of pricing is product/service driven.What is being described?
A) marginal revenue-based pricing
B) market-driven pricing
C) cost-based pricing
D) demand-based pricing

Accepted Answer

This type of pricing is called cost-based pricing, where the firm considers all its expenses and adds a target profit to set a price for its product or service. The pricing is driven by the cost of the product or service, rather than market demand or marginal revenue.

Question 4

When does profit maximization occur?
A) when marginal variable costs equal average revenues
B) when marginal revenue equals marginal cost
C) when total costs equals average fixed revenue
D) when total costs equal total variable costs

Accepted Answer

Profit maximization occurs when the marginal revenue (MR) equals marginal cost (MC), as the MR measures the additional revenue generated by producing one more unit of output, and the MC measures the additional cost of producing one more unit of output. At the point where MR=MC, there is no more profit to be made by increasing or decreasing production, so this is the optimal level of output for the firm.

Question 5

What is the biggest advantage associated with markup pricing?
A) its inability to be decoded by customers
B) its reliance on marginal costs
C) its simplicity
D) the fact that merchandise is never underpriced with this technique

Accepted Answer

The biggest advantage of markup pricing is its simplicity. It is easy to calculate and implement, making it ideal for small businesses or those with limited resources for pricing analysis.

Answer: D
 While markup pricing may not guarantee that merchandise is never underpriced, it does provide a certain level of protection against this. By setting a specific markup percentage, businesses can ensure they are making a profit on each item sold.

Question 6

What is the change in total costs associated with a one-unit change in output?
A) variable cost
B) marginal cost
C) flex cost
D) elastic cost

Accepted Answer

The change in total costs associated with a one-unit change in output is referred to as marginal cost. Marginal cost is important for businesses to consider when making decisions about how much to produce, as it helps determine the optimal level of production to maximize profits.

Question 7

The typical break-even model assumes a given fixed cost and which of the following?
A) constant average variable cost
B) variable per unit cost
C) constant inventory turnover
D) markup cost attained through keystoning

Accepted Answer

The typical break-even model assumes a given fixed cost and a constant average variable cost. This allows for the calculation of the break-even point by dividing the fixed costs by the contribution margin per unit (selling price per unit minus variable cost per unit).

Question 8

Which of the following determine what sales volume must be reached for a product before the company's total costs equal total revenue and no profits are earned?
A) price equilibrium analyses
B) break-even analyses
C) marginal revenue estimates
D) marginal costs of goods sold

Accepted Answer

The concept described in the question is that of break-even analysis, which calculates the sales volume required to cover all costs and achieve zero profit. Therefore, the correct answer is B. The other options are not directly related to this concept.

Question 9

When a seller determines the selling price by adding to cost an amount for profit and expenses not previously accounted for,what type of pricing is the seller using?
A) demand-oriented pricing
B) profit maximization pricing
C) markup pricing
D) target return pricing

Accepted Answer

Markup pricing is where a seller adds a predetermined amount to the cost of a product to determine the selling price, considering profit and expenses not previously accounted for. This method is commonly used in retail and wholesale businesses.

Question 10

Monthly output at Vincent Sheds and Outbuildings changed from 15 to 16 outdoor storage buildings,and the total costs changed from $27,000 to $28,500.What was the marginal cost for the company?
A) $1,500
B) $2,000
C) $1,200
D) $10,000

Accepted Answer

The marginal cost is calculated by dividing the change in total cost by the change in quantity. Here, the change in total cost is $28,500 - $27,000 = $1,500, and the change in quantity is 16 - 15 = 1. Therefore, the marginal cost is $1,500 / 1 = $1,500.

Question 11

An event planner wants to determine a price for a package of garland of silk flowers.Its cost is $7.00.She wants a markup of 30 percent based on selling price.Which of the following is closest to the price she should charge her customers?
A) $15
B) $18
C) $10
D) $12

Accepted Answer

To find the selling price with a markup based on selling price, use the formula: Selling Price = Cost / (1 - Markup Percentage). Here, it's $7 / (1 - 0.30) = $7 / 0.70 = $10.

Question 12

What is the most popular method used by wholesalers and retailers in establishing a sales price?
A) formula pricing
B) markup pricing
C) break-even pricing
D) marginal revenue pricing

Accepted Answer

Markup pricing is the most popular method used by wholesalers and retailers in establishing a sales price. It involves adding a certain percentage (markup) to the cost of the product to determine the selling price. This method is commonly used because it is simple and easy to calculate, and it provides a consistent profit margin.

Question 13

Which of the following describes a disadvantage associated with markup pricing?
A) how difficult it is to implement
B) its inability to consider product demand
C) its dependence on marginal costs
D) too many factors influence it

Accepted Answer

Markup pricing only considers the cost of the product and adds a percentage to determine the selling price. It does not consider product demand, which is a significant factor in determining the optimal price. As a result, it may result in overpricing or underpricing the product, leading to a decrease in overall profitability.

Question 14

As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold,what should a firm do?
A) reach its break-even point very shortly
B) continue manufacturing
C) continue using price equilibrium
D) consider using sales maximization pricing

Accepted Answer

As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold, the firm should continue manufacturing to generate profit. Option A is incorrect because reaching the break-even point does not necessarily generate profit. Option C is irrelevant as it does not relate to the situation at hand. Option D is also incorrect because in this situation, the goal is to generate profit, not necessarily maximize sales.

Question 15

Antique Reproductions pays a manufacturer $800 for a hand-forged iron fireplace screen,and it sells the fireplace screen to a customer for $1,600.What is the markup on the screen?
A) $160
B) $240
C) $400
D) $800

Accepted Answer

The markup on the screen is the difference between the selling price and the cost price, which is $1,600 - $800 = $800.

Question 16

What is the practice of marking up prices by 100 percent (or doubling the cost to set the selling price)?
A) symmetrical pricing
B) mark-on adding
C) margin pricing
D) keystoning

Accepted Answer

Keystone pricing is the practice of marking up prices by 100 percent (or doubling the cost to set the selling price).

Question 17

The point at which marginal cost and marginal revenue are equal always results in which of the following?
A) maximization of revenue
B) maximization of costs
C) maximization of profits
D) break-even equilibrium

Accepted Answer

The point at which marginal cost and marginal revenue are equal (MC=MR) is known as the profit maximization point. At this point, the firm is producing the optimal level of output where the additional cost of producing an additional unit (MC) is equal to the additional revenue earned from selling that unit (MR). Therefore, profit is maximized at this point as any further increase in production would result in a higher cost than revenue earned, leading to a decrease in profit. Therefore, option C is the correct answer.

Question 18

What is the extra revenue associated with selling an additional unit of output?
A) average variable cost
B) marginal cost
C) marginal revenue
D) net profit

Accepted Answer

Marginal revenue is the additional revenue generated from selling one more unit of output. It is important for a firm to know its marginal revenue because it helps in determining the optimal level of production that will maximize profits.

Question 19

What is keystoning?
A) the practice of maintaining variable costs at one-half of total fixed costs
B) a method used for determining the point of elasticity
C) a method of changing consumers' perceptions about price
D) the practice of marking up prices by 100 percent

Accepted Answer

Keystoning refers to the practice of doubling the cost of an item to set the retail price, effectively marking up prices by 100 percent.

Question 20

Deco Furniture sells reproductions of furniture and collectibles that were seen during the early part of the 20th century.The store's owner does not take into account competition when pricing the store's merchandise.The markup on all items in the store is 100 percent over cost (or double the cost).What is Deco Furniture using?
A) break-even pricing
B) keystoning
C) target ROI pricing
D) double sourcing

Accepted Answer

Deco Furniture is using keystoning, which means doubling the cost of an item to determine its selling price. This pricing strategy is commonly used in retail and allows for a consistent markup across all products. Deco Furniture's owner is not taking competition into account when pricing the store's merchandise, so target ROI pricing or break-even pricing are not applicable here. Double sourcing is a procurement strategy that involves using two suppliers for the same product, so it is not relevant to pricing.

Quiz 16: Pricing Concepts

An office supply store can buy an office chair for $30.If the store owner sells the office chair for $45,what is the markup based on the selling price?

Aviation fuel for WestJetLite Airlines represents what type of cost?

A firm develops a satisfactory product/service,evaluates the total expense of the product/service,and sets a price that covers all expenses and a target profit.This type of pricing is product/service driven.What is being described?

When does profit maximization occur?

What is the biggest advantage associated with markup pricing?

What is the change in total costs associated with a one-unit change in output?

The typical break-even model assumes a given fixed cost and which of the following?

Which of the following determine what sales volume must be reached for a product before the company's total costs equal total revenue and no profits are earned?

When a seller determines the selling price by adding to cost an amount for profit and expenses not previously accounted for,what type of pricing is the seller using?

Monthly output at Vincent Sheds and Outbuildings changed from 15 to 16 outdoor storage buildings,and the total costs changed from $27,000 to $28,500.What was the marginal cost for the company?

An event planner wants to determine a price for a package of garland of silk flowers.Its cost is $7.00.She wants a markup of 30 percent based on selling price.Which of the following is closest to the price she should charge her customers?

What is the most popular method used by wholesalers and retailers in establishing a sales price?

Which of the following describes a disadvantage associated with markup pricing?

As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold,what should a firm do?

Antique Reproductions pays a manufacturer $800 for a hand-forged iron fireplace screen,and it sells the fireplace screen to a customer for $1,600.What is the markup on the screen?

What is the practice of marking up prices by 100 percent (or doubling the cost to set the selling price) ?

The point at which marginal cost and marginal revenue are equal always results in which of the following?

What is the extra revenue associated with selling an additional unit of output?

What is keystoning?