Chapter 19 questions w:answers PDF

Preview

Summary

Chapter 19 questions with solutions....

Description

Chapter 19—Pricing Concepts TRUE/FALSE 1. Price is defined as the perceived value of a good or service that is exchanged for a certain dollar amount. ANS: F Price is not necessarily measured in terms of money. In bartering, other items of value may be exchanged. PTS: 1 REF: 689 Thinking KEY: CB&E Model Pricing 2.

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

Profit is the price charged to customers multiplied by the number of units sold.

ANS: F This is revenue. Profit is revenue minus expenses. PTS: 1 REF: 691 Thinking KEY: CB&E Model Pricing

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

3. Today's firms must develop specific, measurable, and attainable pricing objectives if they hope to survive in highly competitive markets. ANS: T PTS: 1 REF: 691 OBJ: 19-2 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 4. efficiently.

The only way to maximize profits is to reduce costs by operating more

ANS: F Profit maximization can also be achieved by expanding revenue by increasing customer satisfaction. Companies can also attempt to reduce costs and expand revenue at the same time. PTS: 1 REF: 692 Thinking KEY: CB&E Model Pricing 5.

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

Target return on investment is the most common profit objective used by firms.

ANS: T PTS: 1 REF: 692 OBJ: 19-2 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 6. that industry. ANS: T

Market share is a company’s product sales as a percentage of its total sales for PTS: 1

REF: 693

OBJ: 19-2

TOP: AACSB Reflective Thinking MSC: BLOOMS Level I Knowledge 7.

KEY: CB&E Model Pricing

Maximization of cash should be a long-term objective.

ANS: F Maximization of cash should never be a long-run objective because cash maximization may mean little or no profitability. Without profits, a company cannot survive. PTS: 1 REF: 694 Thinking KEY: CB&E Model Pricing

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

8. In most communities, the price of gas is more or less the same at all area service stations. This is an example of sales-oriented pricing. ANS: F It is an example of status quo pricing. Status quo pricing seeks to maintain existing prices or to meet the competition’s prices. PTS: 1 REF: 694 Thinking KEY: CB&E Model Pricing 9. dominate.

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level III Application

When pricing goals are mainly sales oriented, cost considerations usually

ANS: F When pricing goals are mainly sales oriented, demand considerations usually dominate. PTS: 1 REF: 695 Thinking KEY: CB&E Model Pricing

OBJ: 19-3

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

10. Profit maximization is the price at which supply and demand are equal, and there is no inclination for prices to rise or fall. ANS: F Price equilibrium is the price at which supply and demand are equal, and there is no inclination for prices to rise or fall. PTS: 1 REF: 697 Thinking KEY: CB&E Model Pricing

OBJ: 19-3

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

11. If demand for milk is inelastic, consumers will not change their purchasing habits greatly when the price of milk changes. ANS: T PTS: 1 TOP: AACSB Reflective Thinking MSC: BLOOMS Level III Application 12.

REF: 697 OBJ: 19-3 KEY: CB&E Model Pricing

If the formula for elasticity results in a measure of elasticity (E) greater than 1,

demand is said to be inelastic. ANS: F If E is greater than 1, demand is elastic. PTS: 1 REF: 697 Thinking KEY: CB&E Model Pricing 13. more elastic.

OBJ: 19-3

TOP: AACSB Reflective

MSC: BLOOMS Level IV Analysis

Research indicates that when a country’s inflation rate is high, demand becomes

ANS: T PTS: 1 REF: 699 OBJ: 19-3 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 14.

When many substitute products are available, demand is inelastic.

ANS: F Demand is elastic when there are many substitute products available. PTS: 1 REF: 699 Thinking KEY: CB&E Model Pricing

OBJ: 19-3

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

15. A lack of pricing power means that when a company tries to raise its prices, it loses sales volume as customers shift to low cost competitors or find a substitute product. ANS: T PTS: 1 REF: 700 OBJ: 19-3 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 16.

Yield management systems can only be used by service industries.

ANS: F As the popularity of yield management systems increases, their use is spreading to manufacturing (in terms of production capacity). PTS: 1 REF: 704 Thinking KEY: CB&E Model Pricing

OBJ: 19-4

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

17. Firms that price their products solely on the basis of costs are adhering to the marketing concept. ANS: F Firms pricing their products solely on the basis of costs are not following the marketing concept. PTS: 1 REF: 704 Thinking KEY: CB&E Model Pricing 18.

OBJ: 19-5

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

The owner of Buffalo Mountain Coffee Shop pays the same amount in rent each

month no matter how many customers she serves. The shop owner’s rent is an example of a marginal cost. ANS: F Rent would be an example of a fixed cost. PTS: 1 REF: 704 Thinking KEY: CB&E Model Pricing

OBJ: 19-5

TOP: AACSB Reflective

MSC: BLOOMS Level III Application

19. Variable costs vary with changes in the level of output, whereas marginal costs do not vary as output changes. ANS: F Marginal costs are the changes in total costs associated with a one-unit change in output. PTS: 1 REF: 704-705 Thinking KEY: CB&E Model Pricing

OBJ: 19-5

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

20. Markup pricing, adding an amount to cost to cover expenses and profit, is one of the most common pricing methods used by intermediaries to establish a selling price. ANS: T PTS: 1 REF: 706 OBJ: 19-5 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 21.

A firm has maximized its profits when its marginal revenue exceeds its marginal

cost. ANS: F A firm has maximized its profits when its marginal revenue equals its marginal cost. PTS: 1 REF: 707 Thinking KEY: CB&E Model Pricing

OBJ: 19-5

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

22. Break-even analysis determines what sales volume must be reached for a product before the company's total revenue equals total costs. ANS: T PTS: 1 TOP: AACSB Reflective Thinking MSC: BLOOMS Level I Knowledge

REF: 707 OBJ: 19-5 KEY: CB&E Model Pricing

23. As products enter the growth stage of the product life cycle, prices generally begin to stabilize. ANS: T PTS: 1 REF: 709 OBJ: 19-6 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 24. The manufacturers that remain in the market toward the end of the maturity stage typically offer similar prices.

ANS: T PTS: 1 REF: 710 OBJ: 19-6 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 25. life cycle.

Prices always steadily decline for a product in the decline stage of the product

ANS: F When only one firm is left in the market, prices begin to stabilize, but they may eventually rise dramatically if the product survives and moves into the specialty goods category, as horse-drawn carriages and vinyl records have. PTS: 1 REF: 710 Thinking KEY: CB&E Model Pricing

OBJ: 19-6

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

26. Adequate distribution for a new product is often obtained by reducing the size of the profit margin for its resellers. ANS: F Adequate distribution for a new product is often obtained by offering a larger-than-usual profit margin to its distributors. PTS: 1 REF: 711 Thinking KEY: CB&E Model Pricing

OBJ: 19-6

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

27. If a shopping bot steers you to an exceptionally low price, you should suspect Internet fraud. ANS: TOP: KEY: MSC:

T PTS: 1 REF: 713 AACSB Technology CB&E Model Pricing | CB&E Model Online/Computer BLOOMS Level II Comprehension

OBJ: 19-6

28. The B2B Internet auction world is shifting from using warranties, delivery dates, and financing options as bargaining chips to haggling over prices. ANS: F The opposite appears to be true. PTS: 1 REF: 714 OBJ: 19-6 KEY: CB&E Model Pricing | CB&E Model Online/Computer MSC: BLOOMS Level II Comprehension 29.

TOP: AACSB Technology

Price should not be used as a promotional tool.

ANS: F Price is often used as a promotional tool ton increase consumer interest. PTS: 1 Thinking

REF: 714

OBJ: 19-6

TOP: AACSB Reflective

KEY: CB&E Model Pricing

MSC: BLOOMS Level II Comprehension

30. When a retailer offers a price-matching guarantee, it is signaling to the target market that it is positioned as a low-price dealer. ANS: T PTS: 1 REF: 715 OBJ: 19-6 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 31. consumers.

High purchase prices may create feelings of pleasure and excitement in

ANS: T PTS: 1 REF: 717 OBJ: 19-6 TOP: AACSB Reflective Thinking KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension 32. Research has shown that products that are perceived to be of high quality tend to benefit less from price promotions than products perceived to be of lower quality. ANS: F They tend to benefit more from price promotions that products perceived to be of lower quality. PTS: 1 REF: 716 Thinking KEY: CB&E Model Pricing

OBJ: 19-6

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

MULTIPLE CHOICE 1.

Price is best described as:

a. b. c. d. e.

that which is given up in exchange to acquire a good or service money exchanged for a good or service the psychological results of purchasing the cost in dollars for a good or service as set by the producer the value of a barter good in an exchange

ANS: A According to the textbook price is that which is given up in exchange to acquire a good or service. PTS: 1 REF: 689 Thinking KEY: CB&E Model Pricing

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

2. At Walmart, Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer. The items, which were sold together, retailed at $28.50, but were marked down to $19.99. The $19.99 is the: a. revenue b. price c. profit d. liquidity value

e.

amortized value

ANS: B Price is that which is given in exchange to acquire a product. PTS: 1 REF: 689 Thinking KEY: CB&E Model Pricing 3. a. b. c. d. e.

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level III Application

All of the following statements about price are true EXCEPT: Price can relate to anything with perceived value, not just money. Price is that which is given up in an exchange to acquire a product. Price means the same thing to the consumer and the seller. The price paid is based on the satisfaction consumers expect to receive from a product. Customers are interested in obtaining a perceived reasonable price.

ANS: C Price means one thing to the consumer and something else to the seller. To the consumer, it is the cost of something. To the seller, price is revenue, the primary source of profits. PTS: 1 REF: 689-690 Thinking KEY: CB&E Model Pricing 4. a. b. c. d. e.

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level IV Analysis

When goods and services are exchanged, the trade is called: exchange substitution barter swap bargaining

ANS: C This is the definition of barter. PTS: 1 REF: 690 Thinking KEY: CB&E Model Pricing 5. a. b. c. d. e.

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

Revenue: equals quantity sold times profit margin equals price minus costs equals return on investment is synonymous with profit equals price of goods times quantity sold

ANS: E Revenue is the price charged to customers multiplied by the number of units sold.

PTS: 1 REF: 690 Thinking KEY: CB&E Model Pricing 6. a. b. c. d. e.

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

_____ pay for every activity of the company. Revenues Investments Retained earnings Profits Prices

ANS: A Revenue is price times units sold, or the total inflow of capital that is available to pay for the costs of manufacturing the good and running the business. PTS: 1 REF: 690 Thinking KEY: CB&E Model Pricing

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

7. At Walmart, Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer. The items, which were sold together, retailed at $28.50, but were marked down to $19.99. The retailer sold one at the $28.50 price and five at the $19.99. The retailer's revenue is: a. $8.51 b. $19. 99 c. $28.50 d. $128.45 e. $171.00 ANS: D $28.50 + ($19.99 x 5) = $128.45. PTS: 1 REF: 690 KEY: CB&E Model Pricing 8. a. b. c. d. e.

OBJ: 19-1 TOP: AACSB Analytic MSC: BLOOMS Level IV Analysis

Money that is left over after paying for company activities is called: return on investment a contribution margin profit net worth a current asset

ANS: C Profit is revenue minus expenses. PTS: 1 REF: 691 Thinking KEY: CB&E Model Pricing 9. environment? a.

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

Why are marketing managers finding it more difficult to set prices in today's Inflationary and recessionary periods have made customers less price-sensitive.

b.

Fewer dealer and generic brands are available because the competition has been eliminated. The high rate of new-product introductions has led to careful reevaluation by consumers. Marketing managers are finding it difficult to compare prices between suppliers. Buyers are less informed and are less pricesensitive.

c. d. e.

ANS: C With constant new-product introductions, consumers have many alternative goods to choose from, and selecting the right price becomes a very complicated task for the marketing manager. PTS: 1 REF: 691 Thinking KEY: CB&E Model Pricing 10.

OBJ: 19-1

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

For convenience, pricing objectives can be divided into three categories. They

are: a. b. c. d. e.

refundable, competitive, and attainable perceived, actual, and unique-situational differentiated, niche, and undifferentiated profit oriented, sales oriented, and status quo monopolistic, fixed, and variable

ANS: D Profit-oriented objectives include profit maximization, satisfactory profits, and target return on investment. Sales-oriented pricing objectives are based either on market share or on dollar or unit sales. Status quo pricing seeks to maintain existing prices or to meet the competition’s prices. PTS: 1 REF: 691 Thinking KEY: CB&E Model Pricing

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level II Comprehension

11. An organization is using _____ when it sets its prices so that total revenue is as large as possible relative to total costs. a. profit maximization b. market share pricing c. demand-oriented pricing d. sales maximization e. status quo pricing ANS: A Profit maximization is a type of profit-oriented pricing objective and means setting prices so that total revenue is as large as possible relative to total costs. PTS: 1 REF: 692 Thinking KEY: CB&E Model Pricing

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

12. When Apple Inc. originally introduced its iPhone it was priced at what many believed to be about as high as the market would allow. Within weeks Apple lowered the price of the iPhone. It appears that Apple Inc. entered the market with a _____ approach to pricing the

iPhone. a. b. c. d. e.

market share pricing profit maximization demand-oriented sales maximization status quo pricing

ANS: B Profit maximization means setting prices so that total revenue is as large as possible relative to total costs. PTS: 1 REF: 692 Thinking KEY: CB&E Model Pricing

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level III Application

13. When Insight Research Associates quotes a marketing research project, management will first estimate the cost to conduct the research and produce and deliver the final client report. The next step in determining the price is to add 30% to that cost estimate. This becomes the price estimate given to the potential research client. This suggests that Insight Research Associates uses a(n) _____ pricing objective. a. profit-oriented b. market share maximization c. status quo d. sales maximization e. supply-demand equalization ANS: A Targeted ROI is one of the most common types of profit-oriented pricing objectives used. PTS: 1 REF: 692 Thinking KEY: CB&E Model Pricing

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level III Application

14. Thompson Pool and Patio is known for quality pool installations, excellent customer service, and reasonable prices. If you want to have a Thompson pool you will have to wait about six months due to demand for their product. While Thompson could probably price their product higher, given the demand, they don’t. Instead, they set price so that they earn a reasonable level of profits. This company seems to base its pricing policy on: a. profit maximization b. earning satisfactory profits c. creating retained earnings d. making the most money as possible e. decreasing consumer demand ANS: B The objective of satisfactory profits is characterized by seeking a level of profits that is satisfactory to management and owner(s). PTS: 1 REF: 692 Thinking KEY: CB&E Model Pricing 15.

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level III Application

_____ is equal to net profit after taxes divided by total assets.

a. b. c. d. e.

Return on investment Economic order quantity Target-on-sales Retained earnings Efficiency maximization

ANS: A This is the definition of return on investment (ROI). PTS: 1 REF: 692 Thinking KEY: CB&E Model Pricing

OBJ: 19-2

TOP: AACSB Reflective

MSC: BLOOMS Level I Knowledge

16. Pierre’s Ice Cream Company produces ultra-rich ice cream, which it sells in the Cleveland, Ohio area. Last year, it managed to exceed its target return on investment (ROI) for the current fi...