Advanced Pricing Strategies: Economic Profit, Bundling, Premium & Image Pricing | 100+ MCQ with Answers
1. What makes pricing the most powerful lever in the marketing mix?
A. It enhances brand equity
B. It improves supply chain efficiency
C. It directly drives revenue
D. It reduces operational risk
✅ Answer: C. It directly drives revenue
2. Accounting profit excludes which of the following?
A. Explicit costs
B. Raw materials
C. Wages
D. Opportunity cost
✅ Answer: D. Opportunity cost
3. Economic profit becomes zero in competitive markets because:
A. Firms collude
B. Government intervention stabilizes prices
C. Entry and exit of firms eliminate abnormal profit
D. Customers stop searching for alternatives
✅ Answer: C. Entry and exit of firms eliminate abnormal profit
4. When positive economic profit appears, what typically happens?
A. Demand decreases
B. Competitors enter and prices fall
C. Firms exit the market
D. Fixed costs rise
✅ Answer: B. Competitors enter and prices fall
5. A firm earning zero economic profit is:
A. Operating at a loss
B. Not covering fixed costs
C. Covering all explicit and opportunity costs
D. Overpricing its products
✅ Answer: C. Covering all explicit and opportunity costs
6. Economic profit accounts for:
A. Only implicit costs
B. Only direct costs
C. Both explicit and opportunity costs
D. Only sunk costs
✅ Answer: C. Both explicit and opportunity costs
7. The pricing strategy matrix is structured on:
A. Geography and cost
B. Firm objectives and customer characteristics
C. Competition and profit margins
D. Technology and operations
✅ Answer: B. Firm objectives and customer characteristics
8. High search costs typically lead customers to:
A. Compare many alternatives
B. Accept price dispersion
C. Avoid high-priced products
D. Rely heavily on reference pricing
✅ Answer: B. Accept price dispersion
9. Low reservation price customers are:
A. Price-sensitive
B. Loyal
C. Brand-driven
D. Quality-focused
✅ Answer: A. Price-sensitive
10. The strategy that exploits customer search behavior is:
A. Periodic discounting
B. Random discounting
C. Captive pricing
D. Image pricing
✅ Answer: B. Random discounting
11. Periodic discounting works because customers:
A. Believe prices are fixed
B. Expect predictable price drops
C. Avoid price comparisons
D. Prefer bundled products
✅ Answer: B. Expect predictable price drops
12. Second-market discounting works best when:
A. Products have no variable cost
B. Customers in different markets have different willingness to pay
C. Competitors are weak
D. Costs are fixed
✅ Answer: B. Customers in different markets have different willingness to pay
13. Price signaling is used primarily to:
A. Create artificial scarcity
B. Influence competitor behavior
C. Expand product lines
D. Reduce production cost
✅ Answer: B. Influence competitor behavior
14. Limit pricing is used to:
A. Maximize short-term profits
B. Prevent entry by setting low prices
C. Increase product quality
D. Maximize margins
✅ Answer: B. Prevent entry by setting low prices
15. Geographic pricing is most useful when:
A. Demand is uniform
B. Distribution costs vary across regions
C. Competitors are local
D. Customers are brand loyal
✅ Answer: B. Distribution costs vary across regions
16. Image pricing differs from premium pricing because it relies on:
A. Cost-based differentiation
B. Physical product features
C. Perceived differences
D. Economies of scale
✅ Answer: C. Perceived differences
17. Captive pricing typically involves:
A. Volume discounts
B. Multi-tiered fixed charges
C. A durable base product and consumables
D. Luxury positioning
✅ Answer: C. A durable base product and consumables
18. Printers and cartridges are an example of:
A. Bundling
B. Captive pricing
C. Dynamic pricing
D. Periodic discounting
✅ Answer: B. Captive pricing
19. Two-part tariffs combine:
A. Fixed fee + optional add-ons
B. Base product + free trial
C. Entry fee + usage fee
D. Subscription + warranty
✅ Answer: C. Entry fee + usage fee
20. Loss leadership works because:
A. Customers buy expensive add-ons
B. Competitors withdraw immediately
C. It increases fixed costs
D. It raises customer acquisition cost
✅ Answer: A. Customers buy expensive add-ons
21. Premium pricing depends on:
A. Economies of scale in production
B. Monopolistic competition
C. High competitor prices
D. Government subsidies
✅ Answer: A. Economies of scale in production
22. Image pricing uses the STP framework primarily for:
A. Product differentiation
B. Psychological segmentation
C. Perceived positioning
D. Cost reduction
✅ Answer: C. Perceived positioning
23. Cost-plus pricing frequently fails because:
A. Costs are always fixed
B. Demand forecasting is too accurate
C. Volume uncertainty inflates unit cost
D. Competitors always underprice
✅ Answer: C. Volume uncertainty inflates unit cost
24. The cost-plus death spiral occurs because:
A. Customers reject bundled prices
B. Rising unit cost forces further price increases
C. Firms compete on quality
D. Costs exceed revenue
✅ Answer: B. Rising unit cost forces further price increases
25. The better decision metric than cost-plus is:
A. Net margin
B. Contribution margin
C. Price elasticity
D. Breakeven volume
✅ Answer: B. Contribution margin
26. The 11-strategy pricing matrix helps managers primarily to:
A. Predict production volumes
B. Select a pricing strategy based on customer and firm factors
C. Evaluate advertising ROI
D. Lower supply chain costs
✅ Answer: B. Select a pricing strategy based on customer and firm factors
27. Random discounting is most effective when customers:
A. Are highly loyal
B. Have high search costs
C. Do not compare prices
D. Expect stable prices
✅ Answer: B. Have high search costs
28. Periodic discounting creates a predictable pattern that leads customers to:
A. Buy during non-discount periods
B. Delay purchases in anticipation of future discounts
C. Buy premium versions
D. Choose substitutes
✅ Answer: B. Delay purchases in anticipation of future discounts
29. Second-market discounting works best when markets:
A. Have identical price sensitivity
B. Are completely homogeneous
C. Differ in willingness to pay
D. Have no entry barriers
✅ Answer: C. Differ in willingness to pay
30. Price signaling typically occurs in markets where:
A. Firms cannot observe each other’s prices
B. Competitors monitor each other’s pricing closely
C. Customer switching cost is zero
D. No firm has market power
✅ Answer: B. Competitors monitor each other’s pricing closely
31. A firm engaging in penetration pricing aims to:
A. Maximize short-term margins
B. Enter the market quickly by offering a low price
C. Reduce fixed cost structure
D. Increase product features
✅ Answer: B. Enter the market quickly by offering a low price
32. Limit pricing attempts to deter entry by:
A. Increasing price variability
B. Setting a sustainably low price below entrant profitability
C. Bundling products aggressively
D. Using subscription models
✅ Answer: B. Setting a sustainably low price below entrant profitability
33. Geographic pricing becomes necessary when:
A. Transportation costs differ by region
B. Product differentiation is minimal
C. All markets have identical infrastructure
D. Demand is stable across locations
✅ Answer: A. Transportation costs differ by region
34. Image pricing is MOST strongly based on:
A. Economies of scale
B. Real product superiority
C. Market psychology
D. Government regulation
✅ Answer: C. Market psychology
35. Under premium pricing, the superior product version:
A. Costs significantly more to produce
B. Is mainly a psychological upgrade
C. Has a small incremental cost compared to the basic version
D. Is only used for luxury markets
✅ Answer: C. Has a small incremental cost compared to the basic version
36. A product line strategy using “basic vs. premium version” relies on:
A. Demand being perfectly elastic
B. Differentiating willingness to pay
C. High fixed cost variability
D. Predictable competitor behavior
✅ Answer: B. Differentiating willingness to pay
37. Selling the same product at different prices based on brand image describes:
A. Price bundling
B. Image pricing
C. Cost-plus pricing
D. Contribution pricing
✅ Answer: B. Image pricing
38. Captive pricing relies on customers being locked into:
A. Periodic sales cycles
B. A durable base product
C. High switching costs
D. Premium-tier memberships
✅ Answer: B. A durable base product
39. A theme park charging an entry fee plus per-ride fee uses:
A. Bundling
B. Skimming
C. Two-part tariff
D. Quantity discount
✅ Answer: C. Two-part tariff
40. Loss leadership is designed to:
A. Lower the lifetime customer value
B. Increase basket size through complementary purchases
C. Reduce fixed cost absorption
D. Signal premium quality
✅ Answer: B. Increase basket size through complementary purchases
41. Cost-plus pricing becomes unreliable because:
A. Fixed costs increase
B. Variable costs disappear
C. Volume changes alter unit cost
D. Margins remain too stable
✅ Answer: C. Volume changes alter unit cost
42. In the cost-plus “death spiral,” raising price results in:
A. Increase in market share
B. Higher volume
C. Lower volume and higher unit cost
D. Lower fixed cost
✅ Answer: C. Lower volume and higher unit cost
43. The correct question under contribution-margin thinking is:
A. “What is the competitor’s price?”
B. “What markup should I add?”
C. “Will this price increase total contribution?”
D. “What is the breakeven in units?”
✅ Answer: C. Will this price increase total contribution?
44. Customer-driven pricing fails mainly because customers:
A. Are willing to share accurate reservation prices
B. Often exaggerate their true willingness to pay
C. Prefer fixed prices
D. Avoid providing feedback
✅ Answer: B. Often exaggerate their true willingness to pay
45. Asking customers about willingness to pay often leads to:
A. Stronger pricing models
B. Accurate price estimation
C. Negotiation traps
D. Lower perceived value
✅ Answer: C. Negotiation traps
46. The better approach to pricing than asking WTP is to:
A. Reduce advertising
B. Prove value exceeds price
C. Compare with competitors
D. Use cost-plus
✅ Answer: B. Prove value exceeds price
47. Share-driven pricing is risky because it can lead to:
A. Increased fixed cost absorption
B. Price wars
C. Low-quality perception
D. High switching costs
✅ Answer: B. Price wars
48. Penetration pricing is MOST appropriate when:
A. The firm wants high initial margins
B. Demand is highly inelastic
C. The firm wants rapid market entry
D. The product is luxury
✅ Answer: C. The firm wants rapid market entry
49. Image pricing is LEAST appropriate when:
A. Customers care strongly about brand stories
B. Actual product differences are irrelevant
C. Customers are extremely price-sensitive
D. Psychological value drives decisions
✅ Answer: C. Customers are extremely price-sensitive
50. Bundling works especially well when:
A. Products have negatively correlated demand
B. Products have highly correlated demand
C. Marginal cost is extremely high
D. Customers refuse substitutes
✅ Answer: A. Products have negatively correlated demand
51. Experience Curve Pricing is most effective in markets where:
A. Learning effects are minimal
B. Marginal cost increases over time
C. Production efficiency improves rapidly with cumulative output
D. Customers have no switching cost
✅ Answer: C. Production efficiency improves rapidly with cumulative output
52. A firm pursuing experience curve pricing usually sets prices:
A. Above marginal cost
B. Below current cost to drive volume
C. Equal to competitor benchmarks
D. Based on customer surveys
✅ Answer: B. Below current cost to drive volume
53. A consumer with low reservation price will respond best to:
A. Premium pricing
B. Image pricing
C. Periodic discounting
D. Captive pricing
✅ Answer: C. Periodic discounting
54. High search-cost customers prefer random discounting because:
A. They enjoy waiting
B. They cannot predict discounts
C. It increases competitor information
D. It reduces the need to constantly check prices
✅ Answer: D. It reduces the need to constantly check prices
55. In price signaling, firms typically use:
A. Cost-plus formulas
B. Advertised price announcements
C. Secret contracts
D. Exclusive bundling
✅ Answer: B. Advertised price announcements
56. Limit pricing succeeds when:
A. Entrants have lower cost
B. Entrants believe the incumbent’s low price is sustainable
C. Incumbents frequently change price
D. Switching cost is zero
✅ Answer: B. Entrants believe the incumbent’s low price is sustainable
57. Geographical pricing differentiates price mainly because of:
A. Inflation
B. Differences in shipping, logistics and regional costs
C. High brand loyalty
D. Competitor benchmarking
✅ Answer: B. Differences in shipping, logistics and regional costs
58. A brand like Rolex avoiding price matching is because:
A. Its demand is highly elastic
B. Its margin structure is weak
C. Competitor prices don’t determine perceived luxury
D. It cannot monitor competitors
✅ Answer: C. Competitor prices don’t determine perceived luxury
59. Under premium pricing, the “basic version” mostly targets:
A. High-value customers
D. Low-WTP customers
C. Retailers
D. Competitors
✅ Answer: B. Low-WTP customers
60. When firms offer multiple product versions, cross-subsidization occurs because:
A. Both versions have identical margins
B. Higher-volume production lowers unit cost
C. The superior version is rarely sold
D. Fixed cost becomes irrelevant
✅ Answer: B. Higher-volume production lowers unit cost
61. The objective of image pricing is to create:
A. Operational efficiency
B. Perceived value differentiation
C. Lower cost per unit
D. Higher fixed cost
✅ Answer: B. Perceived value differentiation
62. Two-part pricing works well in markets where:
A. Usage varies widely
B. Fixed usage is guaranteed
C. Switching costs are zero
D. Variable cost is extremely high
✅ Answer: A. Usage varies widely
63. Loss leader pricing is MOST effective when:
A. Customers buy only the discounted product
B. Complementary products have high margins
C. Competitors match immediately
D. Traffic does not increase
✅ Answer: B. Complementary products have high margins
64. Cost-plus pricing underprices strong markets because:
A. Volume is higher, making unit cost appear lower
B. Margins increase automatically
C. Demand is inelastic
D. Firms calculate cost incorrectly
✅ Answer: A. Volume is higher, making unit cost appear lower
65. The biggest flaw in customer-driven pricing is:
A. Customers always tell the complete truth
B. Customers understate true willingness to pay
C. Firms overestimate cost
D. Firms have no data
✅ Answer: B. Customers understate true willingness to pay
66. Anchoring works because customers:
A. Prefer low prices
B. Compare options relative to an initial reference
C. Ignore all price signals
D. Demand transparency
✅ Answer: B. Compare options relative to an initial reference
67. A/B testing helps with pricing by:
A. Measuring causality in customer responses
B. Reducing fixed cost
C. Limiting competitor entry
D. Increasing inventory levels
✅ Answer: A. Measuring causality in customer responses
68. Matching competitor prices often leads to:
A. Stable markets
B. Higher margins
C. Price wars
D. Greater value perception
✅ Answer: C. Price wars
69. Contribution margin helps managers focus on:
A. Recovering allocated fixed cost per unit
B. Maximizing variable margins per unit sold
C. Improving brand image
D. Reducing marketing spend
✅ Answer: B. Maximizing variable margins per unit sold
70. Under CM logic, a price reduction is acceptable if:
A. Variable cost increases
B. Total contribution increases
C. Sales remain constant
D. Fixed cost decreases
✅ Answer: B. Total contribution increases
71. A firm using premium pricing targets two segments primarily based on:
A. Geography
B. Income
C. Reservation price
D. Switching cost
✅ Answer: C. Reservation price
72. Price bundling works best when:
A. Customers value each component equally
B. Customer valuations differ across product components
C. Products are identical
D. Marginal cost is very high
✅ Answer: B. Customer valuations differ across product components
73. In second-market discounting, the low-price market must:
A. Be easily reachable by high-WTP customers
B. Be geographically isolated or segment-separated
C. Have no competition
D. Have high fixed costs
✅ Answer: B. Be geographically isolated or segment-separated
74. Cross-subsidization in premium pricing is similar to:
A. Loss leadership
B. A two-part tariff
C. Offering student discounts
D. Market segmentation
✅ Answer: D. Market segmentation
75. Limit pricing is a form of:
A. Differential pricing
B. Competitive exploitation
C. Product line pricing
D. Image pricing
✅ Answer: B. Competitive exploitation
76. In cost-plus pricing, managers mistakenly treat unit cost as:
A. A function of actual volume
B. A static number independent of volume
C. A behavioral variable
D. A psychological metric
✅ Answer: B. A static number independent of volume
77. The purpose of periodic discounting is to:
A. Create unpredictability
B. Segment buyers by waiting cost
C. Increase switching
D. Increase marginal cost
✅ Answer: B. Segment buyers by waiting cost
78. If a firm wants to exploit customer impatience, it should use:
A. Penetration pricing
B. Random discounting
C. Periodic discounting
D. Image pricing
✅ Answer: C. Periodic discounting
79. A premium brand avoids share-driven pricing because:
A. It wants to maintain scarcity and exclusivity
B. Cost-plus is more profitable
C. Competitors prefer low prices
D. Customers do not research prices
✅ Answer: A. It wants to maintain scarcity and exclusivity
80. Customer-driven pricing is most likely to succeed when:
A. Market prices are transparent
B. Customers are naive
C. Switching costs are high
D. Value is difficult to estimate
✅ Answer: A. Market prices are transparent
81. An amusement park’s two-part tariff extracts consumer surplus by:
A. Charging the same price to all
B. Charging separately for entry and usage
C. Offering everything for free
D. Forcing membership
✅ Answer: B. Charging separately for entry and usage
82. Price signaling requires competitors to:
A. Have complete ignorance
B. Have very high switching costs
C. Closely monitor one another
D. Sell identical products
✅ Answer: C. Closely monitor one another
83. Premium pricing increases profit by:
A. Reducing fixed cost
B. Expanding production to reduce unit cost
C. Reducing advertising cost
D. Matching competitor pricing
✅ Answer: B. Expanding production to reduce unit cost
84. Loss leadership is profitable ONLY when:
A. Customers buy multiple high-margin items
B. Switching costs are zero
C. Competitors ignore the strategy
D. Fixed cost is minimal
✅ Answer: A. Customers buy multiple high-margin items
85. Image pricing is least effective when:
A. Customers value function over emotion
B. Product ingredients are similar
C. Competitors are premium
D. Branding is strong
✅ Answer: A. Customers value function over emotion
86. Periodic discounting assumes customers differ in:
A. Bargaining skill
B. Waiting cost
C. Income level
D. Literacy
✅ Answer: B. Waiting cost
87. The fundamental flaw of cost-plus pricing is that it:
A. Uses fixed costs incorrectly
B. Ignores competitor moves
C. Ignores price–volume feedback loops
D. Requires complicated calculations
✅ Answer: C. Ignores price–volume feedback loops
88. Contribution margin is preferred over unit cost because it:
A. Is unaffected by volume changes
B. Helps evaluate fixed-cost absorption
C. Is calculated post-sales
D. Ignores variable cost
✅ Answer: B. Helps evaluate fixed-cost absorption
89. A business should reduce price under CM analysis if:
A. Variable cost rises
B. Fixed cost stays constant
C. Contribution increases at a faster rate than margin loss
D. Competitors do the same
✅ Answer: C. Contribution increases at a faster rate than margin loss
90. A firm should increase price under CM analysis if:
A. Quantity drops slightly but contribution increases
B. Volume grows significantly
C. Variable cost declines
D. Competitors raise prices
✅ Answer: A. Quantity drops slightly but contribution increases
91. Image pricing and premium pricing differ primarily in:
A. Product ingredients
B. Cost structure
C. Actual vs. perceived differentiation
D. Production technology
✅ Answer: C. Actual vs. perceived differentiation
92. In second market discounting, preventing arbitrage is essential because:
A. Marginal cost is high
B. Customers will resell cheaper goods into the main market
C. Fixed cost is low
D. Bundling becomes inefficient
✅ Answer: B. Customers will resell cheaper goods into the main market
93. When demand is highly elastic, penetration pricing is:
A. Ineffective
B. Highly effective
C. Always illegal
D. Strictly temporary
✅ Answer: B. Highly effective
94. Firms rely on A/B testing because it isolates:
A. Variable cost
B. Causality of customer behavior
C. Fixed cost
D. Brand loyalty
✅ Answer: B. Causality of customer behavior
95. Experience curve pricing is based on:
A. Increasing marginal returns
B. Learning and cumulative production efficiency
C. Psychological anchoring
D. Competitor price matching
✅ Answer: B. Learning and cumulative production efficiency
96. Complimentary pricing relies on:
A. Weak brand value
B. Sunk-cost lock-in
C. Static demand
D. Cost-plus pricing
✅ Answer: B. Sunk-cost lock-in
97. A firm using loss leadership must have:
A. Zero fixed cost
B. Unlimited inventory
C. Strong complementary product margins
D. Very low brand loyalty
✅ Answer: C. Strong complementary product margins
98. Premium pricing allows firms to segment customers by:
A. Geography
B. Income
C. Willingness to pay
D. Marketing channel
✅ Answer: C. Willingness to pay
99. A two-part tariff is MOST suitable for:
A. Products with unpredictable usage patterns
B. Mass luxury goods
C. One-time purchases
D. Commodities
✅ Answer: A. Products with unpredictable usage patterns
100. Share-driven pricing is strategically weak because:
A. Competitors can easily imitate high prices
B. It reduces brand loyalty
C. It often reduces margins and ignites price wars
D. It increases cost inflation
✅ Answer: C. It often reduces margins and ignites price wars
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