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Basic Marketing: A Global Managerial Approach, 10/e

Stanley J. Shapiro
Kenneth B. Wong, Queens School of Business
William D. Perreault, University of North Carolina
E. Jerome McCarthy, Michigan State University

Price Setting in the Business World

Quiz Questions


1	If a retailer adds a 25-cent markup to a product that costs the retailer $1.00, then the retailer's markup is 20 percent.
		A)	True
		B)	False


2	Total fixed costs do not change when output increases.
		A)	True
		B)	False


3	A low stockturn rate means that inventory costs are low.
		A)	True
		B)	False


4	Leader pricing is normally used with products for which consumers do have a specific reference price.
		A)	True
		B)	False


5	The major disadvantage of price lining is that it is complicated for both clerks and customers.
		A)	True
		B)	False


6	Which of the following about target return pricing is FALSE?
		A)	It means adding a target return to the cost of a product.
		B)	It strives for a percentage return on the investment or a specific total dollar return.
		C)	It is a variation of the average cost method.
		D)	It takes into account competitors' costs.
		E)	It has gained popularity in recent years.


7	The reason companies are moving to a strategic approach to pricing is:
		A)	to justify selling the same product for a variety of prices.
		B)	using a standard markup caused them to lose money.
		C)	the realization that prices affect demand.
		D)	everyone else is doing it.
		E)	all of the above.


8	The two basic approaches to price setting are:
		A)	product-oriented and service-oriented.
		B)	cost-oriented and demand-oriented.
		C)	customer-oriented and competitor-oriented.
		D)	profit and loss.
		E)	ceiling and floor.


9	Inaccurate cost-based pricing is usually caused by:
		A)	inaccurate cost information.
		B)	typographical errors.
		C)	overworked accountants.
		D)	using the wrong cost data.
		E)	ignoring competitive pricing.


10	The owner of a lingerie store found out that competing stores in her trading area have an average markup of 40 percent. She found that her average markup on her most popular item was $15. It sells for $45. This suggests that:
		A)	she has a high stockturn rate.
		B)	her markups in dollar amounts are about the same as her competitors.
		C)	she is pricing her products higher than her competitors.
		D)	she is taking a smaller average markup than her competitors.
		E)	she has higher than average costs.


11	Regarding markups and turnover:
		A)	high markups always lead to high profits.
		B)	depending on the industry—a stockturn rate of 1 or 2 may be quite profitable.
		C)	items sold at low markups (e.g., 20 percent) cannot be profitable.
		D)	speeding turnover usually decreases profits.
		E)	All of the above are true.


12	Wal-Mart sets its prices below other retailers in its service area and generally attracts more customers than the others. Wal-Mart hopes to earn a profit by:
		A)	being the price leader in an oligopoly market.
		B)	relying on a high margin percent.
		C)	achieving status quo pricing objectives.
		D)	achieving a high stockturn rate.
		E)	setting prices based on "value in use."


13	Which of the following would NOT be included in a producer's total fixed cost?
		A)	depreciation
		B)	property taxes
		C)	rent
		D)	component parts
		E)	insurance


14	Total cost:
		A)	is zero at zero output.
		B)	is fixed in total no matter how much is produced.
		C)	increases directly with increases in total variable cost.
		D)	increases directly with increases in total fixed cost.
		E)	All of the above are true except C.


15	The big problem with average cost pricing is that:
		A)	there is no way to include a desired profit per unit.
		B)	fixed costs are hard to estimate.
		C)	it doesn't consider the effect of variable costs.
		D)	it ignores the firm's demand curve.
		E)	none of the above.


16	Break-even charts usually assume that:
		A)	any quantity can be sold at the assumed price.
		B)	total cost and revenue curves are straight lines.
		C)	the break-even point is reached when total cost just equals total revenue.
		D)	average variable cost is constant per unit.
		E)	all of the above.


17	A supermarket operator who is trying to attract customers by advertising a special bargain price on a popular brand of ice cream is using:
		A)	price lining.
		B)	leader pricing.
		C)	odd-even pricing.
		D)	everyday low pricing.
		E)	bait pricing.


18	Which of the following prices is most likely to be seen if a firm is using odd-even pricing?
		A)	$99.95
		B)	$200.00
		C)	$4.40
		D)	$8.00
		E)	$2.03


19	Jadd Supplements has set a suggested retail list price of $40 on its new dietary supplements for body builders on the assumption that its target market will find the product attractive at this price. From this suggested retail list price, Jadd has subtracted its usual chain of markups for wholesalers and retailers to obtain its own selling price of $16. This is:
		A)	odd-even pricing.
		B)	average-cost pricing.
		C)	demand-backward pricing.
		D)	full-line pricing.
		E)	price lining.


20	Regarding bid pricing:
		A)	the same overhead charges and profit rates should apply to all bids—to avoid legal problems.
		B)	the big problem for sellers is assembling all the costs—including variable and fixed costs—that apply to a particular job.
		C)	all business buyers are legally required to accept the lowest bid, if they ask for bids.
		D)	most firms should try to bid for as many jobs as possible to spread risk.
		E)	All of the above are true.

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