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Exam 17: Price Setting in the Business World

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Question 31

Multiple Choice

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Marci, a student, is used to paying $1.25 for a 12-ounce can of Diet Coke from various vending machines on campus, so she expects the new vending machine just installed outside her Chemistry classroom to charge her the same amount for her favorite beverage. For Marci, the $1.25 price is a:

A) reference price
B) gross price
C) bundle price
D) leader price
E) bait price

F) A) and D)
G) C) and E)

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Question 32

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Demand estimates are required for demand-backward pricing to be successful.

A) True
B) False

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Question 33

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Given the following data, compute the BEP in DOLLARS: Selling price = $2.00 Variable cost = $1.00 Fixed cost = $150,000

An advantage of average-cost pricing is that it considers competitors' costs and prices.

Average fixed cost goes down as output decreases.

Product-bundle pricing may encourage customers to spend more and buy products that they would not buy otherwise.

A firm's average variable cost (per unit) is obtained by dividing the total fixed cost by the total variable cost.

When Walgreens Drugstore advertises one price for the cost of a roll of film and the cost of processing it, it is using

If the price per unit is $1.00 and the average variable cost per unit is 60 cents, the fixed cost contribution per unit is $1.40.

A company has total fixed cost of $120,000. Its variable cost per unit is $2.00 and its price per unit is $3.50. The break-even point in units is:

Switching costs refer to costs that a customer faces when buying a product that is different from what has been purchased or used in the past.

If a company raises its price per unit, but keeps total fixed cost and variable cost per unit the same, the break-even point will be lower.

Prestige pricing is most common for luxury products such as furs, jewelry, and perfume.

A paving contractor wants to work on road construction contracts administered and paid for by the state government. The contractor submits a sealed proposal to the state department of transportation for each construction job. The proposal contains a description of how the contractor will fulfill the specifications for the job at a specified price. The contractor is engaging in:

When consumers decide to purchase a music CD from Amazon.com, the company's website often suggests that consumers purchase an additional CD by the same artist for a combined price that is lower than the two CDs would sell for separately. Amazon.com is using:

Leader pricing:

As output increases, average cost decreases continually because

According to the text, the two basic approaches to price setting are

Mark is trying to determine his firm's average cost per unit of production. He finds that the cost for all labor and materials is $80,000 and fixed overhead expenses are $40,000. If the company produces 20,000 items in the time period, the average cost is

Customers are likely to be less price sensitive