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2) ________ is the only element in the marketing mix that produces revenue.
A) Price
B) Product
C) Place
D) Fixed costs
E) Variable costs
Answer: A
Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Easy
8) Why is price considered one of the most flexible elements of the marketing mix?
Answer: Unlike product features and channel commitments, prices can be changed quickly.
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Easy
12) Effective ________ pricing involves understanding how much value consumers place on
the benefits they receive from the product and setting a price that captures that value.
A) competition-oriented
B) cost-based
C) time-based
D) customer-oriented
E) marketer-oriented
Answer: D
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
13) ________ pricing uses buyers' perceptions of value as the key to pricing.
A) Customer value-based
B) Cost-based
C) Time-based
D) Markup
E) Target return
Answer: A
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
14) Factors a company considers in setting its price include all of the following EXCEPT
________.
A) competitors' strategies and prices
B) product costs
C) overall marketing strategy and mix
D) value of the product on the pre-owned market
E) nature of the market and demand
Answer: D
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
18) A pharmaceutical company in Utah recently released a new and expensive anti-ulcer drug
in the market. The company justifies the high price of the drug by claiming that it is highly
effective for treating all kinds of ulcers. The company also claims that the new drug will help
bring down the need for invasive surgeries, an additional benefit for patients. Which of the
following pricing strategies is the pharmaceutical company most likely using in this instance?
A) target pricing
B) markup pricing
C) cost-based pricing
D) value-based pricing
E) break-even pricing
Answer: D
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
19) A restaurant wants to use value-based pricing. It knows the costs of the ingredients in the
food. It must also factor in ________ in determining customer satisfaction and value.
A) wages of employees
B) costs of utilities of the restaurant
C) atmosphere and décor of the restaurant
D) travel distance for customers
E) percentage of bar patrons versus dining patrons
Answer: C
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
20) The perceived value of different product offers can be reasonably assessed by ________.
A) conducting a SWOT analysis
B) preparing demand curves
C) conducting surveys and experiments
D) collecting data about competitors' offers
E) setting a benchmark for product quality
Answer: C
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
22) The Great Recession of 2008 to 2009 triggered a shift in consumer attitudes toward
________.
A) variety and price
B) perceptions of value
C) locations of stores
D) price and quality
E) economic data
Answer: D
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
23) Which of the following involves introducing less-expensive versions of established, brand
name products?
A) markup pricing
B) good-value pricing
C) time-based pricing
D) cost-based pricing
E) target profit pricing
Answer: B
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
24) ________ pricing refers to offering just the right combination of quality and gratifying
service at a fair price.
A) Markup
B) Good-value
C) Cost-plus
D) Target profit
E) Break-even
Answer: B
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
25) When McDonald's and other fast food restaurants offer "value menu" items at surprisingly
low prices, they are most likely using ________ pricing.
A) break-even
B) target profit
C) good-value
D) cost-plus
E) target return
Answer: C
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
26) Azure Air, an airline company, offers attractive prices to customers with tighter budgets. A
no-frills airline, it charges for all other additional services, such as baggage handling and in-
flight refreshments. Which of the following best describes Azure Air's pricing method?
A) target profit pricing
B) good-value pricing
C) cost-based pricing
D) break-even pricing
E) penetration pricing
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
27) Retailers such as Costco and Walmart charge a constant, daily low price with few or no
temporary price discounts. This is an example of ________ pricing.
A) competition-based
B) everyday low
C) cost-plus
D) break-even
E) penetration
Answer: B
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
28) Bon Vivant offers an assortment of exclusive French wines at incredibly low prices. These
prices are neither limited-time offers nor special discounts, but represent the daily prices of
products sold by Bon Vivant. This reflects Bon Vivant's ________ pricing strategy.
A) everyday low
B) markup
C) penetration
D) break-even
E) cost-based
Answer: A
AACSB: Application of knowledge
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
29) ________ pricing involves charging higher prices on an everyday basis but running
30) Department stores such as Kohl's and JCPenney's practice high-low pricing by ________.
A) charging a constant, everyday low price
B) providing few or no temporary price discounts
C) increasing prices temporarily on select products
D) having frequent sale days for store credit-card holders
E) underpricing most consumer items
Answer: D
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
33) In an effort to differentiate its offerings from its competitors, Pegasus Computers decided to
add an extra USB port in all its laptops besides providing a free pair of Delphi power bass
headphones with every Pegasus laptop. Although the additional features increased the price of
the laptops by $500, Pegasus was confident that the strategy would help boost demand for its
laptops substantially. This is an example of ________.
A) good-value pricing
B) markup pricing
C) break-even pricing
D) value-added pricing
E) cost-based pricing
Answer: D
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
34) ________ involves setting prices based on the costs for producing, distributing, and selling
the product plus a fair rate of return for effort and risk.
A) Value-based pricing
B) Competition-based pricing
C) Cost-based pricing
D) Penetration pricing
E) Break-even pricing
Answer: C
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
37) A company must pay each month's bills for rent, heat, interest, and executive salaries
regardless of the company's level of output. This exemplifies its ________ costs.
A) overhead
B) variable
C) target
D) total
E) unit
Answer: A
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
41) Costs that change with the level of production are referred to as ________.
A) fixed costs
B) variable costs
C) target costs
D) total costs
E) overhead costs
Answer: B
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
42) In 2011, the fixed costs of a company were $500,000, and its variable costs equaled
$150,000. In 2010, the company made an annual profit of $200,000. It has been predicted that,
despite a steady growth, the company's variable costs will likely equal $300,000 by 2013. The
total costs of the company in 2011 were ________.
A) $350,000
B) $450,000
C) $650,000
D) $800,000
E) $950,000
Answer: C
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
43) The total production costs at Kellner Machine Works are $87,000 out of which $45,000
represent fixed costs. Which of the following is representative of the variable costs incurred by
the company?
A) $35,000
B) $42,000
C) $45,000
D) $87,000
E) $132,000
Answer: B
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
44) The fixed cost in manufacturing a single LED monitor is $40 and the variable cost is $12. If
the company expects to manufacture 5,000 monitors, the total costs would be ________.
A) $60,000
B) $200,000
C) $260,000
D) $420,000
E) $500,000
Answer: C
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
45) As production moves up, the average cost per unit decreases because ________.
A) variable costs decrease
B) of increasing diseconomies of scale
C) fixed costs are spread over more units
D) overhead costs decrease
E) revenue increases
Answer: C
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
46) A cell phone manufacturing firm produced 1,000 cell phones a day but believed that it
could reasonably step up production to 2,000 cell phones a day. Consequently, it built a larger
plant and installed efficient machinery and work arrangements to realize the projected output.
Which of the following can most likely be inferred from this information?
A) The unit cost of producing 2,000 cell phones per day would be twice that of the unit cost of
producing 1,000 units per day.
B) A production plant with the capacity of producing 5,000 cell phones a day would be most
efficient.
C) The unit cost of producing 2,000 cell phones per day would be lower than the unit cost of
producing 1,000 units per day.
D) A 2,000-capacity production plant would be less efficient because of increasing
diseconomies of scale.
E) The fixed costs of the firm are more likely to increase with the increase in output.
Answer: C
AACSB: Reflective thinking
Skill: Critical Thinking
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
47) The long-run average cost (LRAC) curve indicates the ________.
A) per unit cost of output in the long run
B) projected total production costs of competitors
C) variable costs incurred by a firm over time
D) fixed costs incurred by a firm over the long term
E) number of units the market will buy in a given time period, at different prices that might be
charged
Answer: A
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
48) A manufacturing plant is designed to produce 2000 flat-screen TVs per day. But demand is
higher than that. If the company tries to increase its production to 2500 TVs per day, the
average costs will ________ because ________.
A) decrease; the plant becomes more efficient
B) stay the same; the plant becomes more efficient
C) decrease; the plant becomes inefficient
D) increase; the plant becomes more efficient
E) increase; the plant becomes inefficient
Answer: E
AACSB: Reflective thinking
Skill: Critical Thinking
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
50) As production workers become better organized and more familiar with equipment, the
average cost per unit tends to decrease with the ________.
A) increase in the diseconomies of scale
B) accumulated production experience
C) decrease in the economies of scale
D) increase in derived demand
E) increase in primary demand
Answer: B
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
51) With accumulated production experience and a higher volume of production, companies not
54) To take advantage of a downward-sloping experience curve, a company must do all of the
following EXCEPT ________.
A) increase the product's price
B) be able to sell the higher volume of product
C) price its product lower
D) increase its production output
E) decrease its costs through experience gained
Answer: A
AACSB: Reflective thinking
Skill: Critical Thinking
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
55) Which of the following is most likely a risk associated with experience-curve pricing?
A) High-volume production facilities are unable to meet demand.
B) New technology often leads to productivity problems.
C) Demand for the product fluctuates unpredictably.
D) Consumers tend to prefer new brands over established ones.
E) Aggressive pricing often gives a product a cheap image.
Answer: E
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
59) Lawyers, accountants, and other professionals typically price by adding a standard markup
for profit. This exemplifies ________.
A) target pricing
B) cost-plus pricing
C) value-based pricing
D) break-even pricing
E) penetration pricing
Answer: B
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
60) Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable
costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of
a sandwich maker manufactured by Herbie?
A) $15
B) $25
C) $30
D) $50
E) $75
Answer: B
AACSB: Reflective thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
61) Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a
10 percent markup on its sales. Samsung's markup price is ________.
A) $275
B) $280
C) $295
D) $300
E) $335
Answer: D
AACSB: Reflective thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
65) Target return pricing is a variation of which of the following cost-oriented pricing
approaches?
A) cost-plus pricing
B) break-even pricing
C) markup pricing
D) value-based pricing
E) fixed cost pricing
Answer: B
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
66) Target return pricing uses the concept of a(n) ________, which shows the total cost and
total revenue expected at different sales volume levels.
A) BCG matrix
B) break-even chart
C) SWOT analysis
D) demand curve
E) experience curve
Answer: B
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
67) John assured his venture capitalists an earning of 25-percent return on equity when he
began his IT startup. In order to achieve this result, he will most likely use which of the
following pricing approaches?
A) value-based pricing
B) markup pricing
C) EDLP
D) customer-based pricing
E) target return pricing
Answer: E
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
70) A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to
directly sell its product in the market for $12. How many units must it produce and sell to break
even?
A) 20,000
B) 25,000
C) 30,000
D) 35,000
E) 40,000
Answer: B
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
72) Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of
$1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the
break-even volume?
A) 25,000
B) 55,000
C) 100,000
D) 115,000
E) 125,000
Answer: E
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
73) A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and
break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to
break even?
A) $10
B) $12
C) $14
D) $16
E) $20
Answer: B
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
74) When performing a break-even analysis, the manufacturer should consider all of the
following EXCEPT ________.
A) probable demand
B) likely profits
C) competitors' pricing
D) estimated break-even volumes
E) different prices
Answer: C
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
75) Which of the following involves setting prices based on a rival firm's strategies, costs,
Alden Manufacturing produces small kitchen appliances—blenders, hand mixers, and electric
skillets—under the brand name First Generation. Alden attempts to target newlyweds and first-
time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to
engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics,
"we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The
hand mixers are manufactured in two variants—a small handheld mixer with two rotating
beaters and another that comes with an optional stand and an attached mixing bowl. Alden's
temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each
product like the back of their hands. This allows us to produce superior products while holding
our prices low.
77) Milt Alden says that his line workers "know each product like the back of their hands," and
that this knowledge helps the company keep its prices low. This indicates that Alden
Manufacturing most likely benefits from the ________.
A) cost-plus pricing
B) value-added pricing
C) experience curve
D) inelastic demand in the market
E) derived demand in the market
Answer: C
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
78) Which of these is NOT a way in which pricing can accomplish company objectives?
A) set prices to attract new customers and retain existing customers
B) raise prices to create excitement for a brand
C) set prices low to hinder competition from entering the market
D) price one product to help sales of other products in the company's line
E) set price to keep the loyalty of resellers
Answer: B
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
79) Customer perceptions of the product's value set the floor for prices.
Answer: FALSE
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
81) In customer value-based pricing, price is considered along with all other marketing mix
variables before the marketing program is set.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
82) Value-based pricing uses the sellers' perception of value as the key to pricing.
Answer: FALSE
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
83) Using value-based pricing, a marketer would not design a product and marketing program
before setting the price.
Answer: TRUE
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
84) Good-value pricing usually is used by premium brands, and rarely by less-expensive
brands.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
86) Department stores that practice everyday low pricing typically provide frequent sale days,
early-bird savings, and bonus earnings for store credit-card holders.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Moderate
87) Overhead costs are costs that do not vary with production or sales level.
Answer: TRUE
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
89) Cost-based pricing involves setting prices based on consumer perception of value.
Answer: FALSE
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
90) A company will be at an advantage even if it costs more than its competitors to make and
sell a similar product.
Answer: FALSE
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
93) The simplest pricing method is cost-plus pricing, which involves adding a standard markup
to the cost of the product.
Answer: TRUE
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
94) Markup pricing is popular because when all firms in the industry use this pricing method,
prices tend to be similar, so price competition is minimized.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
95) Markup pricing is used when a firm tries to determine the price at which it will break even
or make the target return it is seeking.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
96) A break-even chart shows the total cost and total revenue expected at various sales volume
levels.
Answer: TRUE
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
97) Break-even volume is the number of unit sales required for total revenue to cover total cost.
Answer: TRUE
Skill: Concept
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Easy
105) A marketer's fixed costs are $400,000. The variable cost is $16 per unit, and the price of
the product is $24 per unit. If the company wants to make a profit, how many units must it sell
and at what price?
Answer: If the company wants to make a profit, it must sell more than 50,000 units at $24
each.
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
106) A marketer's fixed costs are $400,000, the variable cost is $16 per unit, and the price of the
product is $24 per unit. What is the company's break-even point in dollar sales?
Answer: The break-even point in dollar sales is $1,200,000.
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor strategies when
setting prices.
Difficulty: Challenging
110) Which of the following is an external factor that affects pricing decisions in a company?
A) the company's overall marketing strategy
B) the nature of the market
C) the organizational objectives of the company
D) elements of the company's marketing mix
E) the annual advertising budget of rival firms
Answer: B
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
111) Which of the following is an internal factor that affects pricing decisions in a company?
A) the nature of the market
B) the degree of inflation in the economy
C) the overall marketing strategy of the company
D) the forces of demand and supply in the market
E) consumers' perception of value
Answer: C
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
113) Developing an effective integrated marketing mix program involves coordinating price
decisions with product design, promotion, and ________ decisions.
A) distribution
B) production
C) assembly
D) warranty
E) competition
Answer: A
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
114) Elmo Inc., a global conglomerate, designed the ElBrush, an electric toothbrush. Sensing
market demand for the electric toothbrush, Elmo started with an ideal selling price of $13 based
on customer value considerations and then targeted costs to ensure that the price was met. This
exemplifies ________.
A) competition-based pricing
B) cost-plus pricing
C) target costing
D) everyday low pricing
E) high-low pricing
Answer: C
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Challenging
115) PoolPak produces climate-control systems for large swimming pools. The company's
customers are more concerned about service support for maintaining their systems than the
initial price of the product. PoolPak specializes in and differentiates itself through both cutting-
edge technologies used to build its high-value climate control systems as well as seamless
quality service. PoolPak's prices are very high, but demand for its climate-control systems
seems to be forever on the rise. This exemplifies ________.
A) target costing
B) a pure monopoly
C) cost-plus pricing
D) a nonprice position
E) break-even pricing
Answer: D
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Challenging
116) DivetheBlue, a company marketing deep-sea diving equipment, charges very high prices
for its products. Despite the availability of many low-priced products in the market, customers
seem to prefer DivetheBlue, which has earned a reputation for selling high-quality products.
This exemplifies ________.
A) a pure monopoly
B) an oligopoly
C) a nonprice position
D) break-even pricing
E) target costing
Answer: C
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
117) A decision to position the product on high-performance quality will mean that the
________.
A) seller must charge a higher price to cover higher costs
B) seller must charge a lower price to attract more customers
C) producer must step down production
D) marketer must boost derived demand in the market
E) break-even volume will be fairly low
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
120) In industrial markets, ________ typically has the final say in setting the pricing objectives
and policies of a company.
A) the sales manager
B) top management
C) the production manager
D) the HR department
E) the sales staff
Answer: B
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
121) In industries in which pricing is a key factor, ________ often set the best prices or help
others in setting them.
A) sales departments
B) salespeople
C) production managers
D) line managers
E) pricing departments
Answer: E
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
122) Departments or managers that have an influence on pricing include sales managers,
finance managers, accountants, and ________.
A) engineering managers
B) human resources managers
C) production managers
D) customers
E) resellers
Answer: C
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
123) Under ________, the market consists of many buyers and sellers trading in a uniform
commodity.
A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) a pure monopoly
E) the dominant firm model
Answer: A
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
126) In Viña del Mar, Chile, a large number of shops specialize in selling the same quality of
seafood products along the beach frequented by tourists. No individual shop dares charge more
than the going price without fearing loss of business to other shops. This exemplifies
________.
A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) pure monopoly
E) the dominant firm model
Answer: A
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Challenging
127) Under ________, the market consists of many buyers and sellers who trade over a range
of prices rather than a single market price.
A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) a pure monopoly
E) the dominant firm model
Answer: B
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
130) The movie industry in a country is controlled by six large studios that receive 90 percent
of the annual revenues from movies. This is an example of a(n) ________.
A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) pure monopoly
E) government monopoly
Answer: C
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Challenging
133) Which of the following shows the number of units the market will buy in a given time
period, at different prices that might be charged?
A) demand curve
B) supply curve
C) learning curve
D) break-even pricing
E) target costing
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
135) Bruno Servers has decided to decrease its prices on its popular higher-range servers. The
company can reasonably expect ________ to increase.
A) fixed costs
B) variable costs
C) demand
D) additional value
E) overhead costs
Answer: C
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
137) If demand hardly changes with a small change in price, the demand is ________.
A) variable
B) inelastic
C) highly elastic
D) derived
E) negative
Answer: B
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
138) If demand changes greatly with a small change in price, the demand is ________.
A) variable
B) inelastic
C) derived
D) elastic
E) negative
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
139) Dips in the economy and the instant price comparisons made possible by the Internet have
contributed to ________.
A) decreased consumer price sensitivity
B) increased consumer price sensitivity
C) a less direct relationship between supply and demand
D) low brand equity for luxury goods
E) decreased brand loyalty
Answer: B
AACSB: Information technology
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
140) In the aftermath of the Great Recession of 2008 to 2009, consumers ________.
A) have become more value conscious
B) have become less value conscious
C) exhibit great interest in prestige pricing
D) show no interest in price cutting
E) rarely endorse value-for-money deals
Answer: A
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
141) Ways companies have avoided relying on price cuts in the new value-conscious era
include all of the following EXCEPT ________.
A) by adding more affordable product lines for the cost-conscious consumer
B) by redefining the "value" in their value propositions
C) by adding premium product lines for the higher end consumer
D) by offering deep discounts
E) by creating price tiers
Answer: D
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
142) When companies set prices, the government and social concerns are ________ factors
affecting pricing decisions.
A) external
B) internal
C) economic
D) cultural
E) organizational
Answer: A
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
Alden Manufacturing produces small kitchen appliances—blenders, hand mixers, and electric
skillets—under the brand name First Generation. Alden attempts to target newlyweds and first-
time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to
engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics,
"we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The
hand mixers are manufactured in two variants—a small handheld mixer with two rotating
beaters and another that comes with an optional stand and an attached mixing bowl. Alden's
temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each
product like the back of their hands. This allows us to produce superior products while holding
our prices low.
143) Milt Alden uses which of the following strategies for pricing his products?
A) basing company price on competitors' prices
B) using everyday low pricing
C) initiating an aggressive promotional campaign
D) starting with customer-value considerations
E) focusing on overall fixed costs of manufacturing
Answer: D
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Challenging
144) If Milt Alden focuses on overall costs of manufacturing plus profit in setting product
prices, which strategy would he employ?
A) break-even pricing
B) competition-based pricing
C) value-added pricing
D) cost-plus pricing
E) good-value pricing
Answer: D
AACSB: Analytical thinking
Skill: Application
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
145) Internal factors affecting pricing include the company's overall marketing strategy,
objectives, and marketing mix.
Answer: TRUE
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
146) Price decisions must be coordinated with product design, distribution, and promotion
decisions to form a consistent and effective integrated marketing mix program.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
147) In a pure monopoly, the market consists of many buyers and sellers who trade over a
range of prices rather than a single market price.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
148) A demand curve shows the number of units the market will buy in a given time period at
different prices that could be charged.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Easy
149) If a company faces competition, its demand at different prices will depend on whether
competitors' prices stay constant or change with the company's own prices.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
151) The more elastic the demand, the more it pays for the seller to raise the price.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
152) If demand is elastic rather than inelastic, sellers will consider lowering their prices.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
153) While lower prices may attract additional customers, it is possible for pricing strategies to
result in the product becoming a commodity in the customers' eyes.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
156) What are the different internal factors that affect a firm's pricing decisions?
Answer: Beyond customer value perceptions, costs, and competitor strategies, the company
must consider several additional internal and external factors. Internal factors affecting pricing
include the company's overall marketing strategy, objectives, and marketing mix, as well as
other organizational considerations. Price is only one element of the company's broader
marketing strategy. If the company has selected its target market and positioning carefully, then
its marketing mix strategy, including price, will be fairly straightforward. Some companies
position their products on price and then tailor other marketing mix decisions to the prices they
want to charge. Other companies deemphasize price and use other marketing mix tools to create
nonprice positions.
AACSB: Written and oral communication
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
159) What is a demand curve? Explain its importance in the context of pricing decisions.
Answer: A demand curve shows the number of units the market will buy in a given time
period, at different prices that might be charged. Each price the company might charge will lead
to a different level of demand. The relationship between the price charged and the resulting
demand level is shown in the demand curve. In the normal case, demand and price are inversely
related—that is, the higher the price, the lower the demand. Thus, the company would sell less
if it raised its price from P1 to P2. In short, consumers with limited budgets probably will buy
less of something if its price is too high. Understanding a brand's price-demand curve is crucial
to good pricing decisions. Most companies try to measure their demand curves by estimating
demand at different prices. The type of market makes a difference. In a monopoly, the demand
curve shows the total market demand resulting from different prices. If the company faces
competition, its demand at different prices will depend on whether competitors' prices stay
constant or change with the company's own prices.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
Answer: Price elasticity refers to a measure of the sensitivity of demand to changes in price. If
demand hardly changes with a small change in price, the demand is inelastic. If demand
changes greatly, it is elastic.
If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower
price will produce more total revenue. This practice makes sense as long as the extra costs of
producing and selling more do not exceed the extra revenue. At the same time, most firms want
to avoid pricing that turns their products into commodities. In recent years, forces such as
deregulation and the instant price comparisons afforded by the Internet and other technologies
have increased consumer price sensitivity, turning products ranging from telephones and
computers to new automobiles into commodities in some consumers' eyes.
AACSB: Analytical thinking; Written and oral communications
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
161) Briefly describe how economic conditions impact a firm's pricing strategies.
Answer: Economic conditions can have a strong impact on a firm's pricing strategies.
Economic factors such as a boom or recession, inflation, and interest rates affect pricing
decisions because they affect consumer spending, consumer perceptions of the product's price
and value, and the company's costs of producing and selling a product.
In the aftermath of the recent Great Recession of 2008 to 2009, many consumers have
rethought the price-value equation. They have tightened their belts and become more value
conscious. Consumers will likely continue their thriftier ways well beyond any economic
recovery. As a result, many marketers have increased their emphasis on value-for-the-money
pricing strategies.
The most obvious response to the new economic realities is to cut prices and offer discounts.
Thousands of companies have done just that. Lower prices make products more affordable and
help spur short-term sales. However, such price cuts can have undesirable long-term
consequences. Lower prices mean lower margins. Deep discounts may cheapen a brand in
consumers' eyes. And once a company cuts prices, it is difficult to raise them again when the
economy recovers.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate
162) "Beyond the market and the economy, the company must consider several other factors in
its external environment when setting prices." Explain this statement.
Answer: Beyond the market and the economy, the company must consider several other factors
in its external environment when setting prices. It must know what impact its prices will have
on other parties in its environment. How will resellers react to various prices? The company
should set prices that give resellers a fair profit, encourage their support, and help them to sell
the product effectively. The government is another important external influence on pricing
decisions. Finally, social concerns may need to be taken into account. In setting prices, a
company's short-term sales, market share, and profit goals may need to be tempered by broader
societal considerations.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 10.3: Identify and define the other important external and internal factors
affecting a firm's pricing decisions.
Difficulty: Moderate