Unit 9: Pricing Decisions - Practice Quiz

1 Which pricing objective focuses on earning a target return on investment?

2 Which pricing objective aims to increase the number of units sold?

3 A company facing intense competition may set low prices mainly to achieve which objective?

4 What does a status quo pricing objective generally seek to maintain?

5 What does price sensitivity describe?

6 Customers are usually more price-sensitive when a product has many what?

7 Demand is called price elastic when a small price change causes what?

8 Which situation is most likely to reduce a buyer's price sensitivity?

9 Which internal factor directly affects the minimum sustainable price of a product?

10 Which external factor commonly influences a firm's pricing decision?

11 How can strong customer demand generally affect price?

12 Which government action can directly affect product prices?

13 Which pricing method adds a standard markup to the cost of a product?

14 Which strategy sets a low initial price to enter a market and attract many buyers?

15 Which strategy sets a high initial price and lowers it over time?

16 What is bundle pricing?

17 What is price fixing?

18 Which practice involves advertising a very low price without having reasonable stock available?

19 Which product decision is ethically important for protecting consumers?

20 Charging different prices to similar buyers without a legitimate reason may be considered what?

21 A new streaming service sets a low introductory price to attract subscribers quickly and build a large user base. Which pricing objective is it primarily pursuing?

22 A pharmaceutical company owns a patent for an innovative medicine and initially charges a high price to recover its research costs. Which pricing objective best explains this decision?

23 During an industry downturn, a hotel reduces room rates enough to cover operating expenses and maintain cash flow. What is its most likely pricing objective?

24 A luxury watchmaker maintains prices above competing brands and invests heavily in craftsmanship and exclusive retail service. Which pricing objective is most consistent with this approach?

25 A commuter continues buying the same amount of fuel after a small price increase because nearby alternatives are limited. What does this behavior indicate?

26 A software subscription increases its price by $10, and many customers immediately switch to similar services. Which factor most likely caused the strong response?

27 The price of a specialized machine rises from $50,000 to $52,000, but business buyers do not change their orders because the machine generates large production savings. Which effect best explains their low price sensitivity?

28 A company reimburses its sales employees for hotel expenses. Employees therefore pay less attention to room prices than leisure travelers do. Which concept best explains this difference?

29 A bakery's ingredient costs increase by 15%, while customer demand and competitors' prices remain unchanged. Which factor creates the strongest immediate pressure to raise its prices?

30 A manufacturer sells the same appliance in two countries but charges more in the country with high import duties and distribution expenses. Which factor primarily explains the price difference?

31 A fashion retailer discounts winter coats near the end of the season even though production costs have not changed. Which factor most directly influences this decision?

32 A small coffee shop avoids raising prices because a major chain across the street offers similar drinks at current market prices. Which external factor is most influential?

33 A manufacturer calculates that a product costs $80 per unit and adds a 25% markup on cost. What selling price should it set?

34 A company launches a basic smart speaker at a very low price to build a customer base quickly and discourage competitors from entering. Which strategy is being used?

35 A technology company introduces a highly innovative headset at $1,500 and plans to reduce the price as competitors enter. Which pricing strategy does this represent?

36 A theater charges $8 for morning shows and $14 for evening shows, although the service and seating are identical. Which pricing strategy is it applying?

37 After a natural disaster, a retailer triples the price of bottled water despite having purchased the inventory at its normal cost. Which ethical concern does this raise?

38 Two competing construction suppliers secretly agree that neither will sell cement below $12 per bag. Which unethical pricing practice are they engaging in?

39 An online retailer claims that a jacket is reduced from $200 to $100, although it was never offered for sale at $200. What is the main ethical issue?

40 A snack company keeps the package size unchanged but quietly reduces the quantity inside while prominently advertising "same great value." Which ethical concern is most relevant?

41 A firm with constant marginal cost of $60 faces a market whose point price elasticity of demand is $-2.5$. If its sole pricing objective is short-run profit maximization and the elasticity remains stable near the optimum, what price is implied by the Lerner condition?

42 A manufacturer has invested in a product line and seeks a 15% annual return on investment. Expected annual volume is 100,000 units, variable cost is $18 per unit, and attributable annual fixed operating cost is $900{,}000$. Under target-return pricing, what unit price should it set?

43 A cash-constrained entrant prices below the static profit-maximizing level to accelerate adoption. Each new user raises the product's value to other users, while accumulated production reduces future unit cost. Which pricing objective best explains this decision?

44 Two divisions are evaluated separately. The upstream division transfers a component internally at a high price, increasing its reported margin but causing the downstream division to reject orders that would cover the component's incremental cost and add profit to the firm. Which objective should govern the transfer price to avoid this outcome?

45 A seller raises price from $50 to $55, and quantity demanded falls from 10,000 to 8,500 units. Using the midpoint method, which conclusion is most accurate?

46 A business customer buys a $200 sensor that prevents failures in a $2 million production system. The sensor's cost is reimbursed under a cost-plus contract, and approved alternatives require costly recertification. Which combined effect most strongly reduces the customer's price sensitivity?

47 A streaming service estimates own-price elasticity at and cross-price elasticity with a rival at . The rival increases its price by 10%, while the service keeps its own price unchanged. Holding other factors constant, what change in the service's demand is predicted?

48 A brand cuts price by 8% and observes a 12% sales-volume increase. During the same period, category demand rises by 10% because of an external shock. Why is concluding that the brand's price elasticity equals methodologically weak?

49 A firm produces 40,000 units at a variable cost of $24 each and annual avoidable fixed cost of $360,000. It has idle capacity for a one-time export order of 5,000 units at $27 each. The order will not affect domestic sales but requires special packaging costing $2 per unit. Ignoring strategic and legal concerns, should the firm accept?

50 A product costs $80 to manufacture. A wholesaler and retailer require margins of 20% and 30%, respectively, each calculated as a percentage of its own selling price. What minimum final retail price allows both intermediaries to earn their required margins, assuming the manufacturer sells at cost?

51 A patented medicine has very low marginal production cost, no close therapeutic substitute, high verified clinical value, and a payer-imposed reimbursement ceiling. Which factor is most likely to be the binding upper constraint on the transaction price?

52 A manufacturer expects a 20% learning rate, meaning unit cost falls to 80% of its previous level whenever cumulative production doubles. If unit cost is $100 at cumulative output of 10,000 units, what cost is expected at 80,000 cumulative units?

53 A software firm serves two equal-sized segments. Segment A values modules X and Y at $100 and $40; Segment B values them at $40 and $100. Marginal costs are zero, each buyer purchases at most one unit of each module, and valuations are additive. Which pricing strategy produces the highest revenue?

54 A theme park knows each visitor's demand for rides is , where is the per-ride price. Marginal cost per ride is . With identical visitors and no resale, which two-part tariff maximizes profit per visitor while still inducing participation?

55 A company launches a durable technology product with strong patent protection, rapid expected cost decline, uncertain early demand, and a small segment willing to pay a substantial premium for immediate access. Competitors cannot enter for three years. Which initial strategy is most defensible?

56 A hotel has one room left for a date. Historical data indicate a 60% probability of selling it later for $300 and a 40% probability it remains empty. A customer now offers a nonrefundable $190, and servicing cost is unchanged. Under a revenue-management rule based only on expected room revenue, what should the hotel do?

57 A dominant firm prices below its incremental cost in selected cities where a new rival has entered, funds the losses from monopoly profits elsewhere, and raises prices after the rival exits. Which concern is most directly implicated?

58 An online seller advertises a hotel room at $120, but a mandatory $35 service charge appears only on the final payment screen after dates and guest information have been entered. The charge is unavoidable and was omitted from earlier price comparisons. What is the central ethical issue?

59 A retailer offers different personalized discounts to customers using a model trained on browsing behavior. Audit results show that equally costly customers receive systematically different prices because the model uses postal code as a proxy for a protected characteristic. Which response best addresses the ethical problem while preserving legitimate segmentation?

60 Competing distributors independently use the same third-party pricing algorithm. The vendor configures the algorithm to maximize industry-wide margins, shares rivals' near-real-time price data across clients, and discourages price reductions. Which issue is most serious?