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Exam 13: Pricing Products and Services

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Question 81

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Ships Ahoy is a small company that makes model sailboat kits priced at $120. The costs of the materials that go into each kit are $45. It costs $5 in labour to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for the monthly salary of its owner. Ships Ahoy's unit variable cost for its kits is:

A) $50.
B) $45.
C) $170.
D) $120.

E) A) and C)
F) All of the above

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Question 82

Multiple Choice

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Elastic demand exists when:

A) a small percentage decrease in price produces a larger percentage increase in quantity demanded and total revenue increases.
B) a small percentage decrease in price produces a smaller percentage increase in quantity demanded and total revenue falls.
C) the quantity demanded remains the same regardless of level of price and total revenue is unchanged.
D) an increase in price causes a larger increase in quantity demanded and total revenue falls to zero.

E) A) and B)
F) B) and C)

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Question 83

Multiple Choice

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You have been asked to calculate the break-even point for a new line of shirts. The selling price will be $35 per shirt. The labour costs will be $5 per shirt. The administrative costs of operating the company are estimated to be $60,000 annually and the sales and marketing expenses are $20,000 a year. Additionally, the cost of materials will be $10 per shirt. What is the break-even quantity?

Wilkinson Sword exchanged some of its knives for advertising used to promote its razor blades. This practice is referred to as:

Marketing managers often use break-even analysis to analyze the relationship between total revenue and total cost to determine profitability at various levels of output. What is the break-even formula? Use the formula to calculate how many compact disc players a dealer must sell if her fixed costs are $6,000, unit variable costs are $140, and the selling price is $200.

Richard Anderson, an entrepreneur residing in Arizona, noticed that many of his friends and neighbours complained of the intense heat during the summer months. In order to make the heat more bearable, Anderson developed and marketed a simple cooling system that sprayed a fine mist of water into the air. The system attached easily to patio roofs, backyard fences, and even golf carts. Since introducing the product on the market, Anderson has discovered that relatively small changes in the price of the system lead to relatively large changes in demand for his product. The demand for Anderson's product is:

While working towards a target price of $45.00 per widget, Delta Inc., calculated their total input costs were $30.00 per widget. Adding $15.00 to the total input costs to arrive at $45.00 would be reflective of:

A car manufacturer launches a 2014 version of their newest vehicle and has internally stated that each car will have a profit margin of 25%. Manufacturing and marketing need to know this number so they can plan accordingly. The stated profit margin of 25% is an example of a(n) :

The former Soviet republic Turkmenistan is in Central Asia and is one of the last countries on the planet to gain Internet access. The only Internet service provider for the entire country is Turkmen Telecom. There is no need for price competition, promotion competition, or product differentiation because Turkmen Telecom is a(n) :

Which of the following is NOT one of the six major pricing objectives discussed in the text?

Other things equal, if a firm finds the demand for one of its products is inelastic, it can INCREASE its total revenues by:

The theory behind freemium pricing is that:

A specific product in a snack vending machine is:

Market analysts for a large cereal company estimated that price elasticity of demand for pre-sweetened cereal is 1.97, but that the entire market for ready-to-eat cereals exhibits price elasticity of demand of 0.36. Most likely, this information will be collected by managers in which step of the price-setting process?

The Precision Writing Instruments Company makes two pen designs - the Cordova design and the Savannah design. These data apply, regardless of which of two pen designs is being implemented. Materials cost per pen is $6. Labour cost per pen is $5. Production overhead is $1,000,000. Advertising and promotion is $1,000,000. Marketing research has estimated the following demand functions for the next year of sales for the two pen designs where Q represents demand in thousands and P represents price. For the Cordova design, Q = 150 - 2.5P. For the Savannah design, Q = 175 - 2.1P. What are the total costs for sales of 500,000 units of the Cordova design?

The fashion buyer for Neiman Marcus is in Italy to view the new collections and to order for the coming season. In Milan, she negotiates a good price for a quantity of shoes in a range of sizes and styles at FOB factory. This means that:

When Bruno's, a legendary supermarket 10 km north of Toronto, prices rib steaks at $2.29 a pound, which is below its cost, it is attempting not to sell steaks, but to:

In which type of industry would a marketing director be most likely to say, "The purpose of our advertising is to differentiate our firm's products from our competitors' products"?

The use of flexible pricing has grown in popularity because of:

Consumers buy candy bars, snacks, and soda pop from vending machines. Traditionally, the price of each of these products is about 60 cents. If a marketer charges a significantly higher price for such products dispensed by vending machines, sales are likely to decline. In order to avoid such declines in sales, marketers tend to be very consistent in the price charged for vending machine products. This is an example of marketers employing a __________ strategy.