0324548133_TB_C18-1

0324548133_TB_C18-1 - Chapter 18Setting the Right Price...

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Chapter 18—Setting the Right Price TRUE/FALSE 1. The first step in setting the right price for a new product is to estimate demand, costs, and profits. ANS: F The first step in setting the right price for a new product is to derive pricing goals from the firm's overall objectives. PTS: 1 REF: 271 OBJ: 18-1 TYPE: Def TOP: AACSB Reflective Thinking | TB&E Model Pricing 2. All pricing objectives have trade-offs that managers must weigh. ANS: T PTS: 1 REF: 271 OBJ: 18-1 TYPE: Comp TOP: AACSB Reflective Thinking | TB&E Model Pricing | TB&E Model Strategy 3. Once he compiles information on pricing objectives, market demand, quantity supplied, and the price elasticity of demand, the owner/operator of a home cleaning service will be ready to determine the optimal price for a new service offering. ANS: F He must also collect information or estimates about costs and total revenue at a variety of prices. Only then can he make reasonable estimates about profits and market share. PTS: 1 REF: 271-272 OBJ: 18-1 TYPE: App TOP: AACSB Reflective Thinking | TB&E Model Pricing | TB&E Model Strategy 4. Leading Brands, Inc. manufactures Trek Natural sports drink. The company would like to introduce a Trek Natural brand energy drink. Leading Brands would have a great amount of freedom in choosing a price for its new energy drink. ANS: F If a firm brings out a new item similar to a number of others already on the market, its pricing freedom will be restricted. PTS: 1 REF: 272 OBJ: 18-1 TYPE: App TOP: AACSB Reflective Thinking | TB&E Model Pricing | TB&E Model Strategy 5. It makes the most sense to use price skimming as a pricing policy when supply is greater than demand. ANS: F It makes the most sense to use price skimming as a pricing policy when demand is greater than supply. PTS: 1 REF: 272-273 OBJ: 18-1 TYPE: Comp TOP: AACSB Reflective Thinking | TB&E Model Pricing | TB&E Model Strategy 6. Penetration pricing is sometimes referred to as a "market-plus" approach to pricing. ANS: F Price skimming is sometimes referred to as a "market-plus" approach to pricing.
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PTS: 1 REF: 273 OBJ: 18-1 TYPE: Comp TOP: AACSB Reflective Thinking | TB&E Model Strategy 7. The Raver-Smythe Corporation (RSC) has introduced mylar-based artificial fingernails. It earns a low profit margin on the sale of each box of its new fingernails and is still able to meet its revenue objectives due to economies of scale. RSC is using a penetration pricing policy. ANS: T PTS: 1 REF: 273 OBJ: 18-1 TYPE: App TOP: AACSB Reflective Thinking | TB&E Model Pricing 8. One disadvantage of using a penetration pricing policy is that the high unit profit margins will attract potential competitors into production of similar products. ANS: F Penetration pricing has low profit margins on each unit sold. This is seen as an advantage because it discourages potential customers from entering the market.
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