Question 1

Which of the following statements about price and quality is supported by research?
A)The higher the price,the greater the sales volume.
B)Consumers' perception of product quality is related closely to an item's price.
C)Perception of quality has no relationship to price.
D)Quality and price always go hand-in-hand.

Accepted Answer

Research has shown that consumers often associate higher prices with higher quality, leading to a perception that the two are closely related. However, this does not necessarily mean that the relationship is always true, as consumers will also consider other factors such as brand reputation and personal experience.

Question 2

Which of the following pricing objectives will have the most influence on a luxury watchmaker's pricing strategy?
A)Profitability
B)Prestige
C)Meeting the competition
D)Volume

Accepted Answer

A luxury watchmaker is not focused on high volume sales or meeting the competition at lower prices. Profitability is important, but prestige is likely to drive the pricing strategy more heavily as luxury items are often priced based on exclusivity and status.

Question 3

Cup-shirt,a T-shirt company,is conducting a breakeven analysis on unbleached cotton tops.Fixed costs are $100,000 and the per-unit contribution to fixed costs is $20.To break even,the company must sell _____ units.
A)20,000
B)5,000
C)500
D)200

Accepted Answer

The formula for breakeven point in units is:
Breakeven Point (Units) = Fixed Costs / Contribution Margin per Unit

Plugging in the given values:
Breakeven Point (Units) = $100,000 / $20 = 5,000 units

Therefore, the company must sell 5,000 units to break even.

Question 4

Business costs that change with the level of production are called _____ costs.
A)inflexible
B)fixed
C)variable
D)production

Accepted Answer

Variable costs change with the level of production, meaning they increase as production increases and decrease as production decreases. Fixed costs, on the other hand, do not change with the level of production and remain constant. Inflexible and production costs are not commonly used terms in accounting, and do not accurately describe costs that change with the level of production.

Question 5

Oilfield Inc.and Trell Inc. ,two major oil companies,are located directly across the street from one another.Oilfield lowers its price for regular unleaded oil by 5 cents,and Trell quickly follows suit.What pricing objective is Trell using?
A)Competitive pricing
B)Skimming pricing
C)Odd pricing
D)Penetration pricing

Accepted Answer

Trell is using competitive pricing by matching Oilfield's lowered price. This is a common strategy in a highly competitive market where companies need to match their competitors' pricing to stay competitive.

Question 6

Blue,a Jazz club,is conducting a breakeven analysis to determine how many tickets it must sell at $20 each to break even on the Jazz Fest,a program conducted by it.Fixed costs are $4,000,and the variable cost per person is $10.To break even,Blue must sell _____ tickets.
A)800
B)500
C)400
D)80

Accepted Answer

To break even, the total revenue must equal to the total cost. 
Let x be the number of tickets sold. 
Total revenue = $20x 
Total cost = fixed cost + variable cost 
Total cost = $4,000 + $10x

Setting the two equations equals to each other: 
$20x = $4,000 + $10x

Solving for x: 
$20x - $10x = $4,000 
$10x = $4,000 
x = 400

Therefore, Blue must sell 400 tickets to break even on the Jazz Fest program. The correct answer choice is C) 400.

Question 7

A local bakery wanted to attract more customers,so it began offering a dozen bagels for $5 every Wednesday.The bakery is utilizing _____ pricing to increase its volume of sales.
A)skimming
B)odd
C)everyday low
D)discount

Accepted Answer

The bakery is offering a discount on a particular day (Wednesday) to increase sales volume, indicating that it is utilizing discount pricing strategy.

Question 8

Albertsons,a large national supermarket chain,bases pricing decisions on market share and the percentage of a market controlled by a certain product.Albertsons bases its pricing decisions on _____.
A)volume objectives
B)profitability objectives
C)prestige objectives
D)breakeven analysis

Accepted Answer

Albertsons bases its pricing decisions on market share and the percentage of a market controlled by a certain product, which aligns with volume objectives focused on increasing or maintaining market share.

Question 9

Jonathan is planning on setting up a small-scale guitar manufacturing company.Jonathan isn't well versed in economics,so he doesn't understand the concept of supply and demand very well.What pricing strategy must Jonathan adopt?
A)Skimming pricing
B)Prestige pricing
C)Psychological pricing
D)Cost-based pricing

Accepted Answer

Cost-based pricing would be the best choice for Jonathan since he is not well versed in economics and may not understand the market demand for his product. With cost-based pricing, he determines the cost of producing the guitar and adds a markup to set the price. This way, he ensures that he covers his costs and makes a profit. It is a straightforward and safe pricing strategy for a new business. Skimming pricing, prestige pricing, and psychological pricing may be more suitable for established businesses with well-known brands and customer bases.

Question 10

Hammich,a burger restaurant,recently announced plans to drop the price of its double cheese burger from $1.99 to just 99 cents in order to match its competitor's pricing.This is an example of a _____.
A)volume strategy
B)prestige objective
C)profitability strategy
D)price war

Accepted Answer

This is an example of a price war, where competitors try to undercut each other's prices in order to gain market share. Hammich dropping the price of its burger to match a competitor's pricing is a clear indication of a price war.

Question 11

In breakeven analysis,total cost is composed of _____.
A)total sales minus expenses
B)variable costs minus fixed costs
C)price divided by number of units sold
D)total variable costs and total fixed costs

Accepted Answer

In breakeven analysis, total cost is composed of both total variable costs (costs that vary with the level of production or sales) and total fixed costs (costs that do not vary with the level of production or sales). Therefore, choice D (total variable costs and total fixed costs) is the best answer. Choices A, B, and C do not accurately reflect the components of total cost in a breakeven analysis.

Question 12

Chappers,an audio equipment store,wants to price one of its products,a $200 turntable,in such a way that its customers would perceive the turntable's quality to be very high.Which of the following pricing must it use?
A)$203
B)$202
C)$202.22
D)$202.11

Accepted Answer

The answer of Chappers,an audio equipment store,wants to price one...

Question 13

Hoplan,a motel chain,utilizes a pricing strategy of maintaining continuous minimum prices rather than relying on sales.This strategy is an example of _____ pricing.
A)skimming
B)psychological
C)everyday low
D)penetration

Accepted Answer

Hoplan's pricing strategy of maintaining continuous minimum prices is an example of everyday low pricing. This strategy involves setting low prices consistently, rather than relying on sales, discounts, or promotions to attract customers.

Question 14

Score Inc. ,a home products manufacturer,is introducing a new paper coffee filter at a dramatically reduced cost.Score is entering a market already saturated with stiff competition.Which pricing strategy will enable Score to achieve market recognition?
A)Skimming pricing
B)Penetration pricing
C)Psychological pricing
D)Cost-based pricing

Accepted Answer

Penetration pricing is a pricing strategy where the new product is introduced at a lower price than the competitors' prices to gain market share quickly. Since the market is already saturated with competition, this pricing strategy will help Score to attract customers and achieve market recognition. As a result, Score can create a customer base and leverage it in the future to increase prices or introduce newer products.

Question 15

Assume a product costs $5.The variable cost per unit is currently $4,and the fixed cost is $25,000.If the company can alter its production method such that the variable costs fall to $3.50 and the fixed costs rise to $30,000,what will happen to the breakeven point?
A)It will rise and fall later.
B)It will rise.
C)It will remain the same.
D)It will fall.

Accepted Answer

The breakeven point is calculated as Fixed Costs / (Selling Price - Variable Costs). Initially, it is $25,000 / ($5 - $4) = 25,000 units. With the new costs, it becomes $30,000 / ($5 - $3.50) = 24,000 units. Thus, the breakeven point falls.

Question 16

In breakeven analysis,the costs that change with the level of production are considered _____ costs.
A)variable
B)recoverable
C)labor
D)fixed

Accepted Answer

Variable costs are costs that vary based on the level of production, such as raw materials and labor. In breakeven analysis, it is important to consider variable costs because they directly impact the breakeven point and determine whether a company is able to cover its costs and generate profits. Fixed costs, on the other hand, do not vary based on the level of production and are incurred regardless of the company's output.

Question 17

Competitive pricing focuses on _____.
A)the marketing mix
B)skimming pricing
C)variable pricing
D)penetration pricing

Accepted Answer

The answer of Competitive pricing focuses on _____.
A)the marketing mix
B)skimming...

Question 18

If you did a breakeven analysis for your firm,it would be possible for you to show to your management the point at which _____.
A)the level of sales that will cover all of the company's costs
B)the firm would not make a profit if it sold additional units
C)profits would be maximized
D)the firm's fixed costs would climb sharply

Accepted Answer

A breakeven analysis is used to determine the level of sales at which a company's total revenue equals its total costs, resulting in no profit or loss. By performing this analysis, management can determine how many units the company needs to sell in order to cover all costs and identify the minimum sales required to avoid losses. Therefore, the correct answer is A) the level of sales that will cover all of the company's costs.

Question 19

Setting a price relatively high compared to similar goods and then gradually lowering it is a pricing strategy called _____ pricing.
A)penetration
B)skimming
C)cost-based
D)psychological

Accepted Answer

Skimming pricing involves setting a high initial price for a new or innovative product and then gradually lowering it over time. This strategy is used to target early adopters and generate higher profit margins before competitors enter the market.

Question 20

The method of determining the minimum sales volume needed at a certain price level to cover all costs is _____.
A)market share analysis
B)equilibrium pricing analysis
C)return on sales analysis
D)breakeven analysis

Accepted Answer

The method of determining the minimum sales volume needed at a certain price level to cover all costs is known as breakeven analysis. This helps businesses determine the point at which they neither make a profit nor incur a loss, which is an important consideration in pricing decisions. Options A, B, and C are not relevant to this specific method.

Quiz 13: Promotion and Pricing Strategies

Which of the following statements about price and quality is supported by research?

Which of the following pricing objectives will have the most influence on a luxury watchmaker's pricing strategy?

Cup-shirt,a T-shirt company,is conducting a breakeven analysis on unbleached cotton tops.Fixed costs are $100,000 and the per-unit contribution to fixed costs is $20.To break even,the company must sell _____ units.

Business costs that change with the level of production are called _____ costs.

Oilfield Inc.and Trell Inc. ,two major oil companies,are located directly across the street from one another.Oilfield lowers its price for regular unleaded oil by 5 cents,and Trell quickly follows suit.What pricing objective is Trell using?

Blue,a Jazz club,is conducting a breakeven analysis to determine how many tickets it must sell at $20 each to break even on the Jazz Fest,a program conducted by it.Fixed costs are $4,000,and the variable cost per person is $10.To break even,Blue must sell _____ tickets.

A local bakery wanted to attract more customers,so it began offering a dozen bagels for $5 every Wednesday.The bakery is utilizing _____ pricing to increase its volume of sales.

Albertsons,a large national supermarket chain,bases pricing decisions on market share and the percentage of a market controlled by a certain product.Albertsons bases its pricing decisions on _____.

Jonathan is planning on setting up a small-scale guitar manufacturing company.Jonathan isn't well versed in economics,so he doesn't understand the concept of supply and demand very well.What pricing strategy must Jonathan adopt?

Hammich,a burger restaurant,recently announced plans to drop the price of its double cheese burger from $1.99 to just 99 cents in order to match its competitor's pricing.This is an example of a _____.

In breakeven analysis,total cost is composed of _____.

Chappers,an audio equipment store,wants to price one of its products,a $200 turntable,in such a way that its customers would perceive the turntable's quality to be very high.Which of the following pricing must it use?

Hoplan,a motel chain,utilizes a pricing strategy of maintaining continuous minimum prices rather than relying on sales.This strategy is an example of _____ pricing.

Score Inc. ,a home products manufacturer,is introducing a new paper coffee filter at a dramatically reduced cost.Score is entering a market already saturated with stiff competition.Which pricing strategy will enable Score to achieve market recognition?

Assume a product costs $5.The variable cost per unit is currently $4,and the fixed cost is $25,000.If the company can alter its production method such that the variable costs fall to $3.50 and the fixed costs rise to $30,000,what will happen to the breakeven point?

In breakeven analysis,the costs that change with the level of production are considered _____ costs.

Competitive pricing focuses on _____.

If you did a breakeven analysis for your firm,it would be possible for you to show to your management the point at which _____.

Setting a price relatively high compared to similar goods and then gradually lowering it is a pricing strategy called _____ pricing.

The method of determining the minimum sales volume needed at a certain price level to cover all costs is _____.