Pricing Strategy

Question 1

Harry’s Hamburger Joint sells the best hamburgers in town. Harry decides to open a new location on University Avenue. However, because of the higher rent on University Ave., Harry needs to price his hamburgers differently. Harry’s total annual fixed costs at the new location are $50,000; his unit variable cost for his hamburgers is $2.50; and he plans to sell 20,000 hamburgers a year. If Harry wanted to earn a target profit of $20,000, how much should he charge for a hamburger?
A. $6.00
B. $9.00
C. $5.00
D. $3.50

Answer 1

A

Question 2

Leah owns a small kiosk where she sells sunglasses. She sells a pair of Ray-Ban Wayfarers for $200. Leah uses a markup of 20%, and buys the Wayfarers from a distributor. The distributor uses a 60% markup and buys the Wayfarers directly from Ray-Ban. What price does Ray-Ban charge the distributor for the Wayfarers? (round to nearest dollar)
A. $104
B. $111
C. $86
D. $64

Answer 2

D

Question 3

Schmirardelli Chocolate Company, a relatively unknown firm, has developed a new type of chocolate that actually makes people lose weight! There have been numerous tests done to prove these claims and extensive media coverage of this new chocolate. With all of the hype surrounding the launch of their new chocolate, Schmirardelli has found that the demand for it is extremely inelastic, so they decide to set a relatively high price at first and then reduce it over time. Which demand-oriented pricing approach does this represent?
A. Penetration Pricing
B. Prestige Pricing
C. Skimming Pricing
D. Price Lining

Answer 3

C

Question 4

A local store is trying to price their exclusive new teddy bear called, “Timmy Teddy”. The store’s manager has a one-year plan for the store to earn a 25% return on investment (ROI) on its investment in new equipment of $100,000. In the plan, the store is set to manufacture 1,500 units of “Timmy Teddy”. If the store’s annual fixed costs are $50,000 and unit variable costs are $5 to build a “Timmy” bear, what price should the store charge to earn a 25% ROI?
A. $105.00
B. $21.67
C. $50.00
D. $55.00

Answer 4

D

Question 5

Vending machines are a good example of the application of what type of competition-based pricing?
A. Customary pricing
B. Penetration pricing
C. Above-, at-, or below-market pricing
D. Loss-leader pricing

Answer 5

A

Question 6

The ratio of __________ to price is called value.
A. Value-added pricing
B. Perceived costs
C. Perceived revenue
D. Perceived benefits

Answer 6

D