MKTG 376 Test 4

Question 1

Price Premium (formula)

Answer 1

= Brand Price-Benchmark Price / Benchmark Price

Question 2

Benchmark

Answer 2

1. The price of specified competitor’s
2. Average price paid
3. Average price charged

Question 3

Weighted Benchmark (formula)

Answer 3

Total sum of price ($) x unit share (%) for each competitor

Question 4

Unweighted Benchmark

Answer 4

If you do not know the unit share, use the average price charged.

Question 5

When is Price premium negative?

Answer 5

when the brand in question is on low end of the market

Question 6

Price-Volume Dynamics

Answer 6

When price increases, sales can decrease.

Question 7

Linear Demand

Answer 7

the relationship between quantity and price is linear. Any identical change in price produces an identical change in unites demanded.

Question 8

Shallow Demand Function

Answer 8

Large changes in price only cause a small change in quantity

Question 9

Steep Demand Function

Answer 9

A small change in price leads a large change in quantity

Question 10

Demand Slope

Answer 10

Change in quantity / Change in price

Question 11

Maximum Reservation Price

Answer 11

maximum a customer is willing to pay for a product

Question 12

Percent Good Value

Answer 12

proportion of customers who believe the product is a good value for a specified value

Question 13

Maximum Reservation Price (MRP)

Answer 13

The lowest price at which quantity demanded equals zero (no one buys)

Question 14

Maximum Willing to Buy (MWB)

Answer 14

Quantity that customers are willing to ‘buy’ when the price is zero.

Question 15

MWB (formula)

Answer 15

= Q1 - ((Q2-Q1/p2-p1)*P1)

Question 16

MRP (formula)

Answer 16

= P1 - ((P2-P1/Q2-Q1)*Q1)

Question 17

Profit Maximizing Price

Answer 17

Always halfway between cost to make and MRP

Question 18

Optimal Price

Answer 18

= 1/2 (unit variable cost + MRP)

Question 19

Total contribution at optimal price

Answer 19

= (MWB/MRP)*(Optimal price-VC)^2

Question 20

Price Elasticity

Answer 20

calculated in terms of percent change

(new quantity sold - old quantity sold) / old quantity sold / (new price-old price)/old price

Question 21

Inelastic, target market is insensitive

Answer 21

Price elasticity between 0 and -1

Question 22

Elastic, target market is price sensitive

Answer 22

Price elasticity is -1, -2

Question 23

Product is price inelastic

Answer 23

consumer is price insensitive

Question 24

Product is price elastic

Answer 24

if substitute for product exists, consumer is price sensitive.

Question 25

Inelastic Prices

Answer 25

never lower price when a price is inelastic. A lower price will result in lower sales and lower profits

Question 26

Elastic Prices

Answer 26

use caution when lowering prices when prices are elastic. If percent margins are low, a lower price will increase sales, but often result in lower profits

Question 27

Elasticity (formula)

Answer 27

= quantity percent change / price percent change