Chapter 13 Flashcards
Exam 3
With a downward-sloping demand curve, marketing managers are especially interested in?
How sensitive consumer demand and the firm’s revenues are to changes in the product’s price.
Price elasticity of demand
The percentage change in quantity demanded relative to a percentage change in price.
Price elasticity of demand (E) is expressed as?
Percentage change in price
Because quantity demanded usually decreases as price increases, price elasticity of demand is usually a?
Negative number, but are shown as positive numbers for the sake of simplicity.
Price elasticity of demand assumes what two forms?
Elastic demand and Inelastic demand
A manufacturer that uses coupons and other small price decreases to create large changes in demand is relying on?
Elastic demand for the product
Elastic demand exists when?
A 1% decrease in price produces more than a 1% increase in quantity demanded, thereby actually increasing total revenue.
Elastic demand results in a?
Price elasticity that is greater than 1 with elastic demand.
Product with a slight decrease in price results in a relatively large increase in demand or units sold. And vice versa.
Price times quantity sold is
Total revenue
Pure competition
Many sellers who follow the market price for identical, commodity products
Monopolistic competition
Many sellers who compete on non-price factors
Oligopoly
Few sellers who are sensitive to each other’s prices
Pure monopoly
One seller who sets the price for a unique product
A firm must know its competitors’ (?) in order to best set its own.
Prices
Break-even analysis
A technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output.
Fixed cost divided by unit price less unit variable cost is known as?
The break-even point (BEP)
A firm may set goals for its business in terms of profit, sales or unit volume. These are types of?
Pricing objectives
The ratio of perceived benefits to price is a product’s?
Value
Order the types of competitive markets from most competitive to least.
- Pure competition
- Monopolistic competition
- Oligopoly
- Pure monopoly
What are the three factors that influence demand?
- Consumer tastes
- Price and availability of similar products
- Consumer income
Consumer tastes
Depends on many forces such as demographics, culture and technology.
Because consumer tastes can change quickly, up-to-date marketing research is essential to?
Estimate demand
Price and availability of similar products
If the price of a competitor’s pizza that is a substitute for yours, – like Tombstone Pizza – falls, more people will buy it; its demand will rise and the demand for Red Baron pizza will fall.
Other low-priced dinners are also substitutes for pizza.
As the price of a substitute falls or its availability increases, the demand for your Red Baron frozen cheese pizza will?
Fall
Consumer income
In general, as real consumers’ incomes increase (allowing for inflation), demand for a product will also increase.
What is the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold?
Variable Cost (VC)
Variable Cost (VC)
VC = TC - FC
Variable Cost = Total Cost - Fixed Cost
Total Cost (TC)
TC = FC + VC
Total Cost = Fixed Cost + Variable Cost
Fixed Cost (FC)
FC = TC - VC
Fixed Cost = Total Cost - Variable Cost
What is the total expense incurred by a firm in producing and marketing a product?
Total cost (TC)
What is the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold?
Fixed cost (FC)
Unit variable cost (UVC)
UVC = VC/Q
Unit variable cost = variable cost/quantity
The demand curve is?
A graph relating quantity sold and price
Fixed costs
Remain at the same level despite changes in production
In order, what are the following steps in setting prices?
- Identifying pricing objectives and constraints
- Estimate demand and revenue
- Determine cost, volume and profit relationships
- Select an approximate price level
- Set list or quoted price
- Make special adjustments to list or quoted price
By increasing (?) and holding all other variables constant, profit will decrease.
Variable cost
Profit equation
Profit = Total Revenue - Total cost = (Unit price x Quantity sold) - (Fixed cost - Variable Cost)
Total cost is equal to fixed cost
Plus the variable cost
According to the profit equation, profit is?
Total revenue minus total cost
Total revenue equals the product quantity sold times?
The unit price
The money or other considerations exchanged for the ownership or use of a product or service is its?
Price
Barter is?
The practice of exchanging products and services rather than for money
Barter transactions account for?
Billions of dollars annually in domestic and international trade
Consumers’ zeal for low prices combined with the ease of making price comparisons on the Internet has resulted in many companies adding what to their list prices?
Surcharges
To many consumers, price provides information about?
The quality of the product
Value equals?
Value = Perceived benefits/Price
At McDonald’s, you can get several items together as a meal, for less than purchasing those items separately. This is an example of?
Value pricing
Value pricing is?
The practice of simultaneously increasing product and service benefits while maintaining or decreasing price
Which element of the marketing mix is part of the profit equation and therefore, has a direct effect on a firm’s profits?
Price
The price must be “right” in the sense that?
Customers must be willing to pay it
It must generate enough sales dollars to pay for the cost of developing, producing and marketing the product and
It must earn a profit for the company
Small changes in price have big effects on?
Both the number of units sold and company profit
Factors that limit the range of prices a firm set are known as pricing?
Constraints
When the New York Mets set higher ticket prices for games versus the popular New York Yankees than for those versus the Pittsburgh Pirates, its pricing is constrained by?
Demand
The newer a product and the earlier it is in its life cycle?
The higher the price that can usually be charged
In the long run, a firm’s ____ and those of its distributors set a floor for its price, allowing the firm to both survive and get its product to consumers.
Costs
The cost of changing prices is a pricing constraint; as a result, most firms?
Change the prices of their products more often if they sell online
If a company sells many different laptops, its own product line constrains pricing for each product because?
Meaningful price differentials communicate value to consumers
Price transparency has encouraged what type of change in the marketplace?
Proliferation of low-cost providers
A consumer’s near-instantaneous access to competitors’ prices for the same offering through the use of websites, apps and smartphones is known as?
Price transparency
Strategies that can be used as part of a firm’s profit objectives include which two of the following?
Managing for long-run profits
Maximizing current profit objective
Target return
Many Japanese car firms are willing to give up immediate profits for long-term penetration of the market. This is a pricing objective known as?
Managing for long-run profits
Which profit-oriented pricing objective is common in many firms because the targets can be set and performance measured quickly?
Maximizing current profit
When a company sets a profit goal of 20 percent for pretax ROI, it is using which type of pricing objective?
Target return
A firm with a sales objective will set prices at a level that generates more?
Revenues
While cutting the price on one product in a firm’s line may increase its sales revenue, it may also?
Reduce the sales revenue of related products
A pricing objective of increasing sales can have the disadvantage of leading to price cuts that?
May reduce the revenues of related products in the firm’s line
Firms often pursue _____ as a pricing objective when industry sales are relatively flat or declining.
Market share
Market share is the?
Ratio of the firm’s sales revenues or unit sales to those of the industry (competitors plus the firm itself).
The pricing objective based on the quantity of product sold by a firm is also called?
Unit volume
The social responsibility pricing objective often results in?
Decreased profits
Firms that set _____ objectives believe that increased revenues will in turn lead to increases in market share and profit.
Sales
A demand curve is derived by measuring how many units of a product are sold at various
Levels of price
The typical relationship between price and demand is shown as?
A downward-sloping demand curve
The relationship between price and quantity sold is called the?
Demand curve
The three factors influencing the demand curve are consumer tastes, the consumer income, and the price and availability of?
Similar products
Movement along a demand curve implies?
No changes have occurred in any demand factors except price
A shift in the demand curve is the result of?
A change in selling conditions
Despite the recent increases in gas prices, Americans have barely decreased their consumption, which is an example of?
Inelastic demand
Which two of the following are factors that cause price inelasticity?
Few available substitutes
and
Products are considered necessities
The slope of the demand curve shows that?
As price increases, demand decreases
What does not a cause shift in the demand curve?
A change in price
Which of the following products are likely to be price inelastic?
An open heart surgery
According to the price equation, to find the actual price, you should do which of the following to the list price?
Subtract incentives and allowances
and
add extra fees
To increase customer value for a given price, the market must?
Increase perceived benefits
When a consumer is comparing the costs and benefits of substitute items, he or she is developing a?
Reference value
Pricing decisions are difficult because?
Price simultaneously affects total revenue and total cost
According to the price equation, the actual price is the (?) price less incentives and allowances, plus extra fees.
List
According to the value equation, for a given price, as the (?) increase, the value increases.
Perceived benefits
A break-even analysis chart shows the intersection of which two curves?
Total revenue and total costs
The difference between pure competition and monopolistic competition is that in the latter,
Products are perceived to be different
Which of the following is an advantage of using break-even analysis?
Its simple
When a firm sells more product than it needs to cover its total costs, it will?
Make a profit
If you sell picture frames for $120 each, and you have fixed costs of $32,000 and unit variable costs of $40, what is your break-even point?
400 pictures
At the break-even point, profit is?
Zero
In which of the following does the market set prices?
Pure competition
When many sellers follow the market price for products the consumer sees as identical it is known as?
Pure competition
An example of a variable cost is?
Direct labor used to manufacture the product
When Wilkinson Sword exchanged some of its knives for advertising used to promote its razor blades, it was an example of?
Barter
When only a few firms dominate a market, it is known as (?) competition.
Oligopolistic
For a firm, rent, landscaping and insurance are examples of (?) costs.
Fixed
A marketing manager considers pricing objectives and constraints to?
Narrow the range of choices among the variety of pricing strategies
When there are many firms competing for customers in a given market, but the products are differentiated, it is known as?
Monopolistic competition
Why are customers willing to pay extra for a Kohler walk-in tub which eliminates the need to step over the side of the tub?
The safety features enhance the product’s value
If loyalty toward a particular brand makes other brands seem less substitutable, it decreases?
Price elasticity of demand
The unit variable cost is?
The total variable cost divided by the quantity
In a pure competition market, the primary purpose for advertising is?
To inform buyers that a product is available
Small changes in price
Can have comparably big effects on company profit
A product for which nostalgia or fad factors come into play is likely to?
Have higher prices later in its product life cycle
An international firm that contracts with suppliers overseas would be most likely to do so for which of these reasons?
The suppliers might have efficiencies and lower hourly wages, reducing production prices
Out-of-control (?) compared to foreign car companies resulted in the U.S. government investing billions of dollars in U.S. car companies, trying to restructure them to make them competitive?
Manufacturing costs
In an industry that has an oligopoly, price wars are likely to benefit only?
The consumer
In which of the following does the competitive market NOT provide a pricing constraint for the marketer?
Pure monopoly
According to price elasticity, when the price of iPhones drop, the demand for iPhones is likely to?
Increase
The pricing objective known as (?) can be counterproductive if it is achieved by drastic price cutting that drives down profit.
Unit volume
When there are many substitute products available, the price elasticity of demand for a given product will likely be?
Higher
