Question 1

The base price of a product:

Accepted Answer

A)  is a product's expected price. 
B)  equals its list price minus all discounts. 
C)  equals the total production cost of the product divided by the number of units manufactured for sale. 
D)  is its list price. 
E)  equals the price a consumer is willing to pay for additional products.

Question 2

William wants to buy his wife a diamond bracelet for their next anniversary, but he is having trouble saving money for the purchase. Since he decided to buy the bracelet, he has had to pay for two root canals, a new pair of glasses, a new heating and cooling system for his house, and $700 worth or repairs to his car. William is having trouble due to:

Accepted Answer

A)  direct competition 
B)  the availability of substitutes 
C)  replacement utility 
D)  the need to make marginal purchases 
E)  competition for his dollars

Question 3

The total fixed costs for a manufacturer of road maps are $25,000, and its unit variable cost is $3. The company sells 20,000 maps and just breaks even. What is the map's selling price?

Accepted Answer

A)  $1.25 
B)  $3.00 
C)  $4.25 
D)  $6.67 
E)  $8.33

Question 4

Tullia is self-employed and is having trouble understanding her federal tax forms. She has agreed to bake a four-layer wedding cake for Stephanie if Stephanie, an accountant, will prepare Tullia's tax forms. This is an example of:

Accepted Answer

A)  an unethical activity. 
B)  bartering. 
C)  marginal costing. 
D)  a good Samaritan act. 
E)  free trade.

Question 5

Heritage Bakeries in Oregon makes 1,000 pies per day. The total variable cost per raspberry-apple pie is $2.50. Its average fixed costs equal $.77 per pie. The company seeks a 30 percent profit over the cost of its pies so its charges $4.25 per pie. Which pricing method is Heritage Bakeries using?

Accepted Answer

A)  expected pricing 
B)  cost-plus pricing 
C)  marginal cost pricing 
D)  price elasticity 
E)  price inelasticity

Question 6

A company that sells reconditioned personal computers has set the following pricing objective: "To earn a net profit equal to 6 percent of gross sales next year." Which type of profit-oriented pricing objective does this exemplify?

Accepted Answer

A)  the achievement of a target return 
B)  price stabilization 
C)  to meet competition 
D)  to increase sales volume 
E)  sales maximization

Question 7

What kind of pricing strategy would you expect to find being used by the manufacturers of prestige brands such as Ferrari, Waterford, and Steinway?

Accepted Answer

A)  cost-plus pricing 
B)  marginal cost pricing 
C)  market-based pricing 
D)  break-even pricing 
E)  pricing above competition

Question 8

Not all businesses use break-even analysis to determine prices because:

Accepted Answer

A)  the analysis assumes demand determination is a flexible, dynamic activity. 
B)  when calculating the break-even point, a company must assume it can sell a certain quantity of goods at a given price. 
C)  revenue cannot be determined at various levels of output. 
D)  break-even analysis cannot be used in conjunction with cost-plus pricing. 
E)  the analysis pays no attention to different kinds of costs.

Exam 12: Price Determination