CSUF MKTG 351 CHAPTER 20 |41 QUESTIONS AND ANSWERS|GUARANTEED SUCCESS

What roles does price play in evaluating product alternatives? - measure of sacrifice - information cue Define price. that which is given up in an exchange to acquire a good or service What is the sacrifice effect of price? - time and money What is the information effect of price? - price-quality; higher price, better quality What is the importance of price to marketing managers? - results in revenue - results in profit Define revenue. price charged to customers multiplied by the number of units sold Price x Units Sold = Revenue Define profit. revenue minus expenses What are the 3 categories of pricing objectives? -profit-oriented pricing objectives -sales oriented pricing objectives -status quo pricing objectives What factors determine profit oriented pricing objectives? -profit maximization -satisfactory profits -target return on investment (ROI) Define ROI. firm's return on total assets, net profits after taxes divided by total assets ROI = net profits after taxes ÷ total assets What factors determine sales oriented pricing objectives? -market share -sales maximization Define market share. a company's product sales as a percentage of total sales for that industry What factors determine status quo pricing objectives? -requires little planning -meet competitors prices -ignores demand and costs Define status quo pricing. seeks to maintain existing prices or to meet the competition's prices Price for each product depends on what factors? -demand for the good or service -the cost to the seller for that good or service Define demand. the quantity of a product that will be offered to the market by a supplier or supplies at various prices for a specified period How do merchants eliminate surplus? -by lowering price If product is in short supply and consumer want it, how do they entice the dealer to part w/more units? -offer more money--pay higher price Define supply. the quantity of a product that will be offered to the market by a supplier or suppliers at various prices for a specific period Define elasticity of demand. consumer's responsiveness or sensitivity to changes in price Define elastic demand. a situation in which consumers demand is sensitive to price changes > an increase in total revenue when price fall Define inelastic demand. an increase or decrease in price will not significantly affect demand for the product > price and total revenue fall Define unitary elasticity. increase in sales exactly offsets a decrease in price What factors affect elasticity? -availability of substitutes—the more products available, the consumer can easily switch -price relative to purchasing power -product durability -product's other uses—the greater the # of different uses for a product, the more elastic -rate of inflation What is used to compare costs of production to the selling price of a product? -the average costs ( AVC, ATC, AFC) Define variable costs. costs that vary on the level of output—material costs Define fixed costs. costs that don't change as output is decreased or increased—salaries or rent Define average variable costs (AVC). total variable costs divided by quantity of output Define average total cost (ATC). total costs divided by quantity of output Define average fixed cost (AFC). total fixed costs divided by quantity of output Define marginal cost (MC). change in total costs associated w/a one unit change in output Describe the relationships of AVC, ATC, AFC, and MC. -AVC + AFC = ATC -if MC < AVC or AFC, increase in costs will pull averages down -if MC > AVC or AFC, it will pull averages up