marketing quiz 8

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Kenny Chesney fans can buy his new CD at Target. Target purchases these CD's from therecording studio for $7.00 per CD. If Target uses a markup of 30%, what price will the fanshave to pay per CD?

A. $4.90

B. $10.00

C. $9.10

D. There is not enough information to calculate the price.

E. $7.30

Answer Key: B

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Lecture page 104A. $4.90 ≠ $10.00B. Man. Price = Retail Price x [ (100 - %Retail Markup) / 100 ]$7 = RP x [ (100 – 30) / 100 ] $7 = RP x 0.70

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My Workspace BCN3027: 6070, Spring 2013 BCN3224: 5905, Spring 2013

BCN3255: All Sections, Spring 2013 BCN3431: All Sections, Spring 2013

MAR3023, All Sections: Spring 2013 ARC2180/ARC6911: All Sections (Huang), Fall 2011

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A __________ involves successive price cutting by competitors to increase or maintain theirunit sales or market share.

A. price downsizing

B. low-price policy

C. price war

D. price reduction

E. pricing backlash

Answer Key: C

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

A. oligopoly.

B. pure competitor.

C. monopolistic competitor.

D. pure monopoly.

E. free enterprise.

Answer Key: D

($7 / .7)= RP$10 =RPC. $9.10 ≠ $10.00D. Enough information for solving for Retail Price is given in the quiz question.E. $7.30 ≠ $10.00

Text page 368A. “Price downsizing” is not an actual marketing term.B. “Low-price policy” is not an actual marketing term.C. “Price wars” involve successive price cutting by competitors to increase or maintaintheir unit sales or market share.D. “Price reduction” is not the term used to describe the situation laid out in this quizquestion.E “P i i b kl h” i t t l k ti t



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

A. Neiman Marcus selects the mode of transportation, pays freight charges, and isresponsible for any damage while the shoes are in transit because title passed tothe buyer at the point of loading.

B. the factory pays freight to the U.S., Neiman Marcus pays freight within the U.S.

C. the factory passes the title when the goods are loaded, but will pay all shippingcosts.

D. Neiman Marcus and the factory split freight costs.

E. the factory selects the mode of transportation, pays freight charges, and isresponsible for any damage because the seller retains title to the goods until theyare delivered to Neiman Marcus.

Answer Key: A

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Text page 338A. An “oligopoly” exists when there are a few sellers who are sensitive to each other’sprice. There is some price competition, various differentiated products, and someadvertising.B. “Pure competition” exists when many sellers follow the market price for identical,commodity products. There is almost no price competition, no product differentiation,and little need for advertising. Although the characteristics of this may sound similar tothose of pure monopoly, the difference is that with pure competition, the market is whatdetermines the outcome, not the firm.C. “Monopolistic competition” exists when many sellers compete on nonprice factors.There is some price competition, some product differentiation, and much advertising.D. “Pure monopoly” exists when one seller sets the price for a unique product. There isno price competition, no product differentiation, and very little advertising. This is allb th ll t th i th th d d d ti i i i l

Text page 372A. “FOB (Free On Board)” some vehicle at some location, which means the seller paysthe cost of loading the product onto the vehicle. The title to the goods passes to thebuyer at the point of loading, so the buyer is responsible for picking the mode oftransportation and paying for all transportation and handling costs. The seller names thelocation of this loading as the FOB factory. In this quiz question, Neiman Marcus is thebuyer and is therefore responsible for the activities outlined.B. With the FOB factory concept, costs are not assigned based on location.C. While it is true that the FOB factory passes title of goods to the buyer when they areloaded, but the responsibility of shipping costs lies with the buyer.D. Splitting costs is not a factor of the FOB factory concept.E. This statement is the description of responsibilities of exactly the other party. In this



Toyota introduced a new mid-sized SUV, which it priced at $30,000. However, manycustomers did not want to buy this new model because many competitors were offering asimilar car for $27,000. Therefore, Toyota informed its prospective customers that in additionto the equivalent cost of the car, they were also receiving services above that of thecompetition. Toyota's car care service is valued at $4,000 and the extended warranty isvalued at $2,000. Therefore, when buying the Toyota SUV for $30,000, the customers areactually receiving a discount of $3,000. This technique is known as ____.

A. Unbundling price

B. Value-based pricing

C. Benefit analysis

D. Cost analysis

E. Bundling price

Answer Key: A

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Patty O'Rourke hired an attorney to represent her in a court case involving an auto accident.The attorney charged O'Rourke a fee for his services. Terry Thomas needed a haircut--thelocal stylist charged him $12 for her services. Aaron Mathison mowed his neighbor's lawn; inexchange, the neighbor roto-tilled Mathison's garden. The attorney fees paid by O'Rourke, the$12 charged by the hair stylist, and exchange of lawn mowing for garden tilling are examplesof:

A. product fares.

B. price.

C. unfair market exchanges.

D. barter.

E. fee setting.

Answer Key: B

Lecture page 110A. “Unbundling price” is the identification of individual benefits and their relevant valuesthat make up the price of the packaged product. In this quiz question, Toyota identifiesthe good itself and the services accompanying it to demonstrate what these componentswould be priced at individually.B. “Value-based pricing” is when subjective judgments are heavily taken into account inorder to align the price with the value delivered to the customer. It includesunderstanding the use of the product, analyzing the benefits, analyzing the costsinvolved, and looking at the cost/benefit tradeoff. In this quiz question, Toyota is notusing value pricing because it is instead breaking down the components that make up theprice.C. “Benefit analysis” is not an actual marketing term.D. “Cost analysis” is an attempt to determine the costs incurred in marketing anddi t ib ti d t I thi i l T t ’ i i th i f it d d



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Newsweek ran a pricing experiment that involved setting different prices for its magazine indifferent cities and counting the number of units sold. After adjusting for factors like thepopulation of the different cities, Newsweek could plot these prices and units to result in a:

A. target return curve.

B. unit cost curve.

C. unit volume curve.

D. demand curve.

E. consumer tastes curve.

Answer Key: D

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Dell is entering the video game market with their new product, the Xtreme Sphere. Theywant a parity price with Microsoft's X-Box. The following are the brand ratings for the twoproducts

Xtreme Sphere X-Box Importance

Graphics 9 8 9

Reliability 6 8 5

Text page 331A. “Product fares” is not an actual marketing term.B. “Price” is the money or other considerations (including other goods and services)exchanged for the ownership or use of a good or service. In this quiz question, the moneygiven to the attorney and hair stylist and the service traded for garden work areexamples of prices paid.C. “Unfair market exchanges” is not an actual marketing term.D. “Barter” is a type of price and is the practice of exchanging goods and services foranother goods and services rather than for money. In this quiz question, the attorney andhairstylist fees are monetary prices

Text page 339-340 A) Target returns deal with certain methods to set the price. The target return methodsare profit based approaches. There is not a target return curve. B) The newspaper is interested in how the quantity demanded changes with the differentprices. The unit cost of the newspapers will be the same. C) There is no such curve. D) A demand curve is the summation of points representing the maximum number of

d t ill b t gi i



Games Selection 7 9 9

Features 8 4 7

Microsoft currently charges $150 for the X-Box. If Dell wishes to achieve a parity price withthe X-Box for its Xtreme Sphere, it should charge _____.

A. $156.11

B. $144.13

C. $150.00

D. $230.00

E. $159.00

Answer Key: A

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Gina's Jewelry is an upscale store offering high quality jewelry. Gina charges prices that areconsiderably higher than those of her competitors. Despite this difference in price, Gina'ssales revenues are consistently the highest in the market. This is an example of:

A. Customary Pricing

B. Cost-Based Pricing

C. Penetration Pricing

D. Competition-Based Pricing

E. Prestige Pricing

Answer Key: E

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Lecture page 109 To find the parity price we use the critical strategic pricing ratio: Value of Brand X = Value of Brand Y Value = Total perceived benefit/ price We need to find the price where Total perceived benefit of Xtreme Sphere/Price of Xtreme Sphere = Total perceivedbenefit of X-Box/ Price of X-Box Benefit of Xtreme Spehre = (9 x 9) + (6 x 5) + (7 x 9) + (8 x 7) = 230 Benefit of X-Box = (8 x 9) + (8 x 5) + (9 x 9) + (4 x 7) = 221 230/ price = 221/150 230 x 150 / 221 = Price = $156.11

Lecture page 107 A) Customary pricing: a method of pricing based on tradition, a standardized channel of




Ralph Lauren is happy with its current profit level and decided to set its prices to try toachieve the same level of profit next year, even though it may be possible to earn evenmore. This is an example of which pricing objective?

A. predatory pricing

B. profit maximization

C. market share maintenance

D. profit satisficing

E. parity maintenance

Answer Key: D

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distribution, or other competitive factors. This type of pricing is used in vendingmachines or other products where there is a common standard price. B) There is not mention of cost or markup in this question, so there is no evidence Ginais using cost-based pricing C) Gina is charging prices considerably higher than her competition so she is not usingpenetration pricing. Penetration prices starts with a low price and gradually brings it up. D) Competition-based pricing one of the five basic pricing approaches. This answer is toogeneral. E) Prestige pricing involves setting a high price so that status-conscious consumers will be

Lecture page 102

A) Predatory pricing is the practice of charging a very low price for a product with theintent of driving competitors out of business. B) Profit maximization involves setting the price of the product so as to maximize profit. C) A firm may wish to set the price that maintains its current market share. D) Profit satisficing involves choosing a price that yields a satisfactory profit-level. It isusually employed when a firm is unable to precisely determine the profit maximizingprice. In this example Ralph Lauren is satisfied with its current profit even though it isnot its profit maximizing level. Therefore, Ralph Lauren is using a profit satisficingobjective.



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Demand factors are factors that determine:

A. the number of consumers who can afford to purchase a product or service.

B. the price that should be charged for a given product.

C. consumers' willingness and ability to pay for goods and services

D. the number of consumers who want to purchase a product.

E. the number of consumers who can purchase a product.

Answer Key: C

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Text page 340 A) This has to do with the ability of consumers to purchase a product. This number isaffected by demand factors. B) The price of the product is only one of the demand factors. C) This is the definition of demand factors. Demand factors include price, consumertastes, price and availability of similar products, and consumer income. D) This has to do with willingness to purchase a product. Demand factors like consumer

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Megan just took her first vacation to India. She visited a market and was surprised to findthat goods did not have fixed prices. Instead, she had to haggle with the vendors. Thissystem was very different from the United States where prices are usually fixed. Pricingdecisions by management are important in the Unites States because of reliance on what typeof pricing?

A. Competitive parity

B. Market share

C. Administered

D. Profit satisficing

E. Profit maximization

Answer Key: C

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Ralph Lauren is happy with its current profit level and decided to set its prices to try toachieve the same level of profit next year, even though it may be possible to earn evenmore. This is an example of which pricing objective?

A. predatory pricing

B. profit maximization

C. market share maintenance

D. profit satisficing

E. parity maintenance

Answer Key: D

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tastes affect the number of consumers who want to purchase a product, but this answeris too specific

Lecture page 101

In the United States there is a reliance on “administered pricing”, which means pricesare determined before hand (they are fixed) and in general there is no bargaining overprices.

Lecture page 102

A) Predatory pricing is the practice of charging a very low price for a product with theintent of driving competitors out of business.




To enable manufacturers to smooth out manufacturing peaks and troughs and therebycontribute to more efficient production, manufacturers offer _________ to their channelmembers:

A. trade discounts.

B. functional discounts.

C. noncumulative discounts.

D. cumulative discounts.

E. seasonal discounts.

Answer Key: E

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Elizabeth is the manager of a new spa opening in Gainesville and wants to know how much tocharge for a massage. She knows that her fixed costs are $1850 and her variable costs permassage are $25. Furthermore, she assumes that her staff can give 50 massages per day. Tobreak even, she would have to charge what price?

A. $37.50

B. Can't tell from information given.

C. $62.00

D. $1875.00

B) Profit maximization involves setting the price of the product so as to maximize profit. C) A firm may wish to set the price that maintains its current market share. D) Profit satisficing involves choosing a price that yields a satisfactory profit-level. It isusually employed when a firm is unable to precisely determine the profit maximizingprice. In this example Ralph Lauren is satisfied with its current profit even though it isnot its profit maximizing level. Therefore, Ralph Lauren is using a profit satisficingobjective.

Text page 370A. “Trade (or functional) discounts” are given by manufacturers to reward wholesalersand retailers for marketing functions they will perform in the future. These reductionsoff the list price or base price are offered to resellers in the channel of distribution onthe basis of where they are in the channel and the marketing activities they are expectedto perform in the future.B. “Functional discounts” is another term for “trade discounts”.C. “Noncumulative discounts” are a type of quantity discount that are based on the sizeof an individual purchase order. They encourage large individual purchase orders, not aseries of orders.D. “Cumulative discounts” are a type of quantity discount that apply to the accumulationof purchases of a product over a given time period. They encourage repeat buying by asingle customer to a far greater degree than do non-cumulative quantity discounts.E “S l di t ” i b f t t b t t k



E. $25.00

Answer Key: C

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Wham-O Inc. doesn't know what price it should charge its distributors in order to sell itsnewest product, "The Mean Lean Cleaning Machine". After some market research they learnthat the retail price consumers are willing to pay is $120.00. Wham-O's retailers charge amarkup of 40%, and its distributors charge a 10% markup. The price that Wham-O shouldcharge the distributors is:

A. $77.14

B. Not enough information given.

C. $77.90

D. $65.45

E. $64.80

Answer Key: E

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Lecture page 103

Breakeven price = (Total Fixed Cost / # units) + Variable Cost per unit

Elizabeth’s fixed cost per massage is ($1850 / 50) = $37Her variable cost per massage = $25

Substituting,

Breakeven price = $37 + $25 = $62.00

This means Elizabeth must charge $62 per massage in order to breakeven and cover hercosts.

Lecture page 108

In this question you are asked to find the manufacturer’s price, or the price that Wham-O will charge the distributors. The chain markup formula for manufacturer’s price is

MP = RP x ((100 - %RMU) / 100) x ((100 - %DMU) / 100)

Where, MP = Manufacturers price (the price charged by the manufacturer to the distributor) RP = Retail price (the price charged by the retailer to the consumer) %RMU = Retailer’s markup%DMU = Distributor’s markup




_____ is the marketing of two or more products for a single "package" price.

A. Loss-leader pricing

B. Multi-product pricing

C. Packaged pricing

D. Tie-in pricing

E. Bundle pricing

Answer Key: E

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Which cost-based pricing method entails adding a fixed percentage to the cost of all items ina specific product class?

A. cost plus fixed-fee pricing

B. experience curve pricing

C. target profit pricing

D. demand backward pricing

E. standard markup pricing

Answer Key: E

Substituting, MP = $120 x ((100 – 40) / 100) x ((100-10) / 100) MP = $120 x .6 x .9MP = $64.80

Text page 359

A) Loss-leader pricing involves deliberately selling a product below its customary price inorder to attract customers in hopes they will buy other products as well. B) Created term. C) Created term. D) Created term. E) Bundle pricing by definition is marketing of two or more products for a single "package"price. Bundle pricing assumes that consumers value the package more than the individualitems and usually provides a lower total cost to buyers and lower marketing costs to



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__________ is charging different prices to maximize revenue for a set amount of capacity atany given time.

A. Skimming pricing

B. Yield management pricing

C. Demand backward pricing

D. Penetration pricing

E. Target pricing

Answer Key: B

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Which of the following is NOT a problem associated with the Cost-Based and Profit-Basedpricing strategies?

A. These strategies do not take into consideration increases in production efficiencythat would create economies of scale.

B. These strategies do not take into consideration competitors' prices.

Text page 360A. “Cost-plus fixed-fee pricing” means that a supplier is reimbursed for all costs,regardless of what they turn out to be, but is allowed only a fixed fee as profit that isindependent of the final cost of the project. B. “Target profit pricing” is when a firm sets an annual target of a specific dollar volumeof profit. C. “Experience curve pricing” is a method based on the learning effect, which holds thatthe unit cost of many products and services declines by 10 percent to 30 percent eachtime a firm’s experience at producing and selling them doubles.D. “Demand backward pricing” is not an actual marketing term.E. “Standard markup pricing”, by definition, entails adding a fixed percentage to the cost

Text page 359A. “Skimming pricing” is the practice of setting the highest initial price that customersreally desiring the product are willing to pay.B. “Yield management pricing”, by definition, is the charging of different prices tomaximize revenue for a set amount of capacity at any given time. It is a complexapproach that continually matches demand and supply to customize the price for aservice.C. “Demand backward pricing” is not an actual marketing term.D. “Penetration pricing” is the practice of setting a low initial price on a new product toappeal immediately to the mass market.E. “Target pricing” involves estimating the price that the ultimate consumer would be



C. These strategies do not take into consideration the cost of goods in relation toprofits.

D. These strategies do not take into consideration demand factors.

E. These strategies do not take into consideration factors external to the firm.

Answer Key: C

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Lecture page 106A) The failure to account for economies of scale is a problem associated with thesepricing strategies. The variable cost may be reduced as more and more units areproduced, so the unit cost of production usually drops as the firm’s output increases. B) Cost-Based and Profit-Based pricing strategies do not include competitive factors suchas competitors’ prices. C) This is not a problem. These strategies do take into consideration the cost of goods inrelation to profits. D) Both these strategies ignore demand factors. They have an internal focus so there isno reflection of the external market factors like demand.

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Most consumers realize the quality of diamonds varies, and most believe the higher the priceof the diamond the higher its quality. This is an example of price influencing the perceptionof overall quality, and _____ to consumers.

A. acceptable cost

B. value

C. barter potential

D. return on investment

E. perceptual investment

Answer Key: B

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Text page 332A) Acceptable cost is not a real marketing term. B) Value can be defined as the ratio of perceived benefits to price (value = perceivedbenefits/price). The higher diamond price is a signal to consumers that they will receivemore benefit from the higher priced diamond.

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__________ is a pricing method where a supplier is reimbursed for all costs, regardless ofwhat they may be, plus a set earlier-agreed-on dollar amount that is independent of the finalcost of the project.

A. Cost-plus-fixed-fee pricing

B. Experience curve pricing

C. Target return on investment pricing

D. Target return on sales pricing

E. Cost-plus-percentage-of-cost pricing

Answer Key: A

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Which of the following is NOT a problem associated with the Cost-Based and Profit-Basedpricing strategies?

A. These strategies do not take into consideration increases in production efficiencythat would create economies of scale.

B. These strategies do not take into consideration competitors' prices.

C. These strategies do not take into consideration the cost of goods in relation toprofits.

D. These strategies do not take into consideration demand factors.

E. These strategies do not take into consideration factors external to the firm.

C) Barter is the practice of exchanging goods and services for other goods and servicesrather than for money. Barter does not have to do with the overall quality or perceptionof quality of goods. D) Return on investment has to do with manufacturers earning a certain percentage ontheir investment It does not deal with consumer perception of quality

Text page 360A. “Cost-plus fixed-fee pricing” is, by definition, a method where a supplier isreimbursed for all costs, regardless of what they turn out to be, plus a set earlier-agreed-on dollar amount that is independent of the final cost of the project. The supplieris allowed only a fixed fee at a profit that is independent of the final cost of the project.B. “Experience curve pricing’ is based on the learning effect, which holds that the unitcost of many products and services declines by 10 percent to 30 percent each time afirm’s experience at producing and selling them doubles.C. “Target return-on-investment pricing” is a method of setting prices to achieve a pre-determined ROI. D. “Target return-on-sales pricing” is where a firm sets typical prices that will give it aprofit that is a specified percentage of the sales volume. The formula to determine this



Answer Key: C

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Old Navy wants to introduce a new line of fleece pullovers. They have an extra lining thatmakes them even better at keeping out the cold than the previous year's pullovers. It costsOld Navy $10 to acquire each pullover from the manufacturer. Old Navy then sells eachpullover for $25. What percent markup is Old Navy using?

A. 60%

B. 250%

C. 40%

D. 150%

E. 25%

Answer Key: A

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Lecture page 106A) The failure to account for economies of scale is a problem associated with thesepricing strategies. The variable cost may be reduced as more and more units areproduced, so the unit cost of production usually drops as the firm’s output increases. B) Cost-Based and Profit-Based pricing strategies do not include competitive factors suchas competitors’ prices. C) This is not a problem. These strategies do take into consideration the cost of goods inrelation to profits. D) Both these strategies ignore demand factors. They have an internal focus so there isno reflection of the external market factors like demand

Lecture page 104

In order to find the percent markup we will use the markup pricing formula and solve for% markup.

P = Cost of Goods / ((100 - % markup) / 100)

Substituting, $25 = $10 / ((100 - % markup) / 100) ((100 - % markup) / 100) x $25 = $10((100 - % markup) / 100) = .4(100- % markup) = 40% markup = 60



Value-pricing is:

A. the practice of simultaneously increasing product and service benefits andmaintaining or decreasing price.

B. the ratio of perceived benefits to price.

C. list price minus discounts and allowances plus extra fees.

D. the practice of simultaneously increasing product and service benefits andincreasing price.

E. the ratio of price to perceived benefits.

Answer Key: A

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You can buy a General Electric dishwasher for $399, or you can buy a similar sized under-the-counter Bosch brand dishwasher for $989. Since Bosch uses its pricing strategy to project acertain product image, it is most likely using _____ pricing.

A. standard markup

B. bait and switch

C. penetration

D. target profit

E. prestige

Answer Key: E

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Text page 332

By definition value-pricing is the practice of simultaneously increasing product andservice benefits while maintaining or decreasing price.

Text page 357-358

A) Standard markup entails adding a fixed percentage to the cost of all items in a specificproduct class. B) Bait and switch is a deceptive practice whereby firms bait customers by offering a lowprice on a particularly item, and then persuade them to purchase a higher-priced item(switch) using a variety of tricks. C) Penetration pricing entails setting a low introductory price on a new product to appealimmediately to the mass market. D) Target profit pricing involves setting the price of the product in order to achieve aspecified amount of profit. E) Prestige pricing involves setting a high price so that quality or status conscious




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

A. lowering its price.

B. reducing variable costs.

C. raising its price.

D. reducing both fixed and variable costs.

E. reducing fixed costs.

Answer Key: C

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The iPod is a very popular item among people of all ages. The demand is continuing to grow.The iPod's introductory price was around $300, but it is now down to $199.00 for the basicmodel. As the price has dropped, sales have increased. Which pricing strategy was used foriPod?

A. Price Elasticity

B. Penetration Pricing

C. Prestige Pricing

D. Bundle Pricing

E. Skimming Pricing

Answer Key: E

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Text page 343-344

Inelastic Price exists in a marketplace when the percentage change in demand is lessthan the percentage a change in price. In other words, an increase in price results inmore total revenue that offsets any slight drop in the number of units sold.

A) Since the price for its products is inelastic, lowering price actually will reduce totalrevenue. For example, pretend the current selling price is $10 and demand is 100 units.Current total revenue equals $1000. If the firm reduced its price to $5, the total numberof additional units sold would not make up for the lost revenue due to the lower price. B) Although a reduction in fixed and variable costs would affect total profit, a reductionof the two would not affect total revenue. C) Increasing price would affect total revenue, but reducing total costs would not. Thisanswer is incorrect. D) A reduction of fixed costs would not affect total revenue. E) Pick numbers to prove this answer choice For example pretend the current selling

Lecture page 107




Firehouse Subs just opened in Gainesville. Firehouse's _______ costs include the rent for thelocation and utilities, and their _______ costs include the ingredients and labor for each subthat is made.

A. Fixed, Variable

B. Fixed, Controllable

C. Input, Output

D. Uncontrollable, Variable

E. Variable, Fixed

Answer Key: A

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Kristen and David are shopping for a new television set. They research two different, well-known brands and conclude the following. (Their ratings and importance weights aremeasured on 1-10 scales, as used in class.)

If the Toshiba TV costs $100, what is the parity price of the Sony TV? (Round upward to thenearest dollar.)

A) Price elasticity is not a pricing strategy. Price elasticity deals with the percentagechange in quantity demanded relative to a percentage change in price. B) A penetration pricing strategy starts by setting a low initial price on a new product toappeal immediately to the mass market. This is opposite of what the iPod did. C) Prestige pricing is a pricing strategy that involves setting a high price so that status-conscious consumers will be attracted to the product and buy it. Apple lowered the priceof its iPod, so it not using prestige pricing. D) Bundle pricing is the marketing of two or more products in a single “package” price.There is no bundle or package in this question. E) Skimming pricing involves setting the highest initial price that customers really

Lecture page 102

Fixed costs are constant in the short run and do not change with the quantity of output.Rent and utilities are examples of fixed costs. Variable costs vary directly with theamount of output. Ingredients and labor are examples of variable costs.



A. $100.00

B. $98.00

C. $96.00

D. $104.00

E. $102.00

Answer Key: E

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Lecture page 109 To find the parity price we use the critical strategic pricing ratio: Value of Brand X = Value of Brand Y Value = Total perceived benefit/ price We need to find the price where Total Perceived Benefit of Toshiba/ Price of Toshiba = Total Perceived Benefit of Sony /Price of Sony Benefit of Toshiba = (8 x 9) + (7 x 8) + (5 x 5) + (8 x 6) = 201 Benefit of Sony = (7 x 9) + (9 x 8) + (8 x 5) + (5 x 6) = 205 201/100 = 205/price --> Price = 205 x 100 / 201 = $102.00

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