Ch. 20 - Pricing Concepts

Question 1

Price

Answer 1

That which is given up in an exchange to acquire a good or service

Question 2

Revenue

Answer 2

The price charged to customers multiplied by the number of units sold

Question 3

Profit

Answer 3

Revenue minus expenses

Question 4

Return on investment (ROI)

Answer 4

Net profit after taxes divided by total assests

Question 5

Market share

Answer 5

A company’s product sales as a percentage of total sales for that industry

Question 6

Status quo pricing

Answer 6

A pricing objective that maintains existing prices or meets the competition’s prices

Question 7

Demand

Answer 7

The quantity of a product that will be sold in the market at various prices for a specified period

Question 8

Supply

Answer 8

The quantity of a product that will be offered to the market by a supplier at various prices for a specified period

Question 9

Price Equilibrium

Answer 9

The price at which demand and supply are equal

Question 10

Elasticity of demand

Answer 10

Consumers’ responsiveness or sensitivity to changes in price

Question 11

Elastic demand

Answer 11

A situation in which consumer demand is sensitive to changes in price

Question 12

Inelastic demand

Answer 12

A situation in which an increase or a decrease in price will not significantly affect demand for the product

Question 13

Unitary elasticity

Answer 13

A situation in which total revenue remains the same when prices change

Question 14

Dynamic pricing

Answer 14

A strategy whereby prices are adjusted over time to maximize a company’s revenues

Question 15

Yield management system (YMS)

Answer 15

A technique for adjusting prices that uses complex mathematical software to profitably fill unused capacity by discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity

Question 16

Variable cost

Answer 16

A cost that varies with changes in the level of output

Question 17

Fixed cost

Answer 17

A cost that does not change as output is increased or decreased

Question 18

Average variable cost (AVC)

Answer 18

Total variable costs divided by quantity of output

Question 19

Average total cost (ATC)

Answer 19

Total costs divided by quantity of output

Question 20

Average fixed costs (AFC)

Answer 20

Total fixed costs divided by quantity of output

Question 21

Marginal cost (MC)

Answer 21

The change in total costs associated with a one-unit change in output

Question 22

Markup pricing

Answer 22

The cost of buying the product from the producer, plus amounts for profit and for expenses not otherwise accounted for

Question 23

Keystoning

Answer 23

The practice of marking up prices by 100 percent, or doubling the cost

Question 24

Profit maximization

Answer 24

A method of setting prices that occurs when marginal revenue equals marginal cost

Question 25

Marginal revenue (MR)

Answer 25

The extra revenue associated with selling an extra unit of output or the change in total revenue with a one-unit change in output

Question 26

Break-even analysis

Answer 26

A method of determining what sales volume must be reached before total revenue equals total costs

Question 27

Selling against the brand

Answer 27

Stocking well-known branded items at high prices in order to sell store brands at discounted prices

Question 28

Extranet

Answer 28

A private electronic network that links a company with its suppliers and customers

Question 29

Prestige pricing

Answer 29

Charging a high price to help promote a high-quality image