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Exam 20: Price Setting in the Business World

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Question 91

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If a service firm sets a specific price for each possible job-rather than setting a standard price for all potential customers-it is most likely using:

A) product-bundle pricing.
B) a one-price policy.
C) price lining.
D) average-cost pricing.
E) bid pricing.

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Question 92

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Which of the following pricing approaches should be used by a profit-oriented retailer if its demand curve is down-sloping to the right for a while-but then actually bends back to the left at lower prices?

A) Psychological pricing
B) Prestige pricing
C) Average-cost pricing
D) Bait pricing
E) Penetration pricing

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Question 93

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Items with lower markups may be more profitable-if the stockturn is higher.

Each possible price has its own break-even point.

You are considering opening a fast-food store.Your fixed costs for the required land,building,parking lot paving,kitchen equipment,and neon sign will be $1,000,000.The variable cost will be $1.89 for servings which will sell for $2.89.How many servings must you sell to break even?

The sum of those costs that do not change in total-no matter how much is produced-is called:

Which of the following is an example of a fixed cost?

Use this information for question that refer to the Sporting Products,Inc.(SPI) case. Randy Todd,marketing manager for Sporting Products,Inc.(SPI) ,is thinking about how changes taking place among retailers in his channel might impact his strategy. SPI sells the products it produces through wholesalers and retailers.For example,SPI sells basketballs to Wholesale Supply for $8.00.Wholesale Supply uses a 20 percent markup and most of its "sport shop" retailer customers,like Robinson's Sporting Goods,use a 33 percent markup to arrive at the price they charge final consumers.However,one fast growing retail chain,Sports Depot,only uses a 20 percent markup for basketballs,even though it pays Wholesale Supply the same price as other retailers.Furthermore,Sports Depot occasionally lowers the price of basketballs and sells them at cost-to draw customers into its stores and stimulate sales of its pricey basketball shoes. Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products.For example,Sports Depot prices all of its baseball gloves at $20,$40,or $60-with no prices in between.There are three big bins - one for each price point. Todd is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out.The basic idea is to sell tennis balls in large quantities to nonprofit groups who resell the balls to raise money.For example,a service organization at a local college bought 2,000 tennis balls printed with the college logo.Sports Depot charged $.50 each for the tennis balls-plus a $500 one-time charge for the stamp to print the logo.The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless. Todd is not certain if Sports Depot ideas will affect SPI's plans.For example,SPI is considering adding tennis racquets to the lines it produces.This would require a $500,000 addition to its factory as well as the purchase of new equipment that costs $1,000,000.The variable cost to produce a tennis racquet would be $20,but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each.That would allow most retailers to add their normal markup and make a profit.However,if Sports Depot sells the racquet at a lower than normal price other retailers might decide to carry it. How could Randy Todd use break-even analysis with his tennis racquet decision?

Which of the following costs decrease with increase in output?

In a down economy,a local florist surveys her customers to determine the amount they feel comfortable spending for a bouquet of flowers.Then she displays bouquets costing that exact amount in her refrigerated case.This is an example of ______.

A producer sells an item to a wholesaler for $4.00,and the wholesaler uses a markup of 25 percent on its selling price.What will be the cost to the retailer?

Average-cost pricing means adding a reasonable markup to the total cost of a product.

What is the best pricing tool marketers have for looking at costs and revenue at the same time?

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

Which of the following statements is a characteristic of leader pricing?

. Sellers sometimes take the auction approach and adapt it by using sequential price reductions over time.When or where is this approach most commonly used?

A firm is looking to construct a new office.It puts out a request for proposals from contractors inviting their price quotations given certain defined specifications.This is an example of ______.

The major disadvantage of price lining is that it is complicated for both clerks and customers.

The sole objective of leader pricing is to sell large quantities of the leader items.

Identify the type of pricing that offers a specific price for each possible job rather than setting a price that applies for all customers.