ama pcm practice test

Which of the following is true of price elasticity?

• A. The lower the number of substitute products, the higher the price elasticity of demand for a given product.
• B. Rises in income can lead to drops in price elasticity even though product prices are constant.
• C. Products for which demand is highly inelastic are susceptible to minor changes in price.
• D. Generally, if demand for a product is inelastic, lowering the price will appreciably increase demand.
• E. Consumers are generally more sensitive to price decreases than to price increases.

EZ, a manufacturer of electronic appliances, manufactures sandwich toasters, waffle makers, and
sandwich-waffle makers. Recently, EZ reduced the price of sandwich-waffle makers by 20%. This
increased the sales of sandwich-waffle makers by 20% and reduced the sale of sandwich toasters by
30% and waffle makers by 25%. Which of the following is true of this scenario?

• A. The price elasticity of sandwich-waffle makers is -2.
• B. The cross-price elasticity of sandwich-waffle makers and sandwich toasters is -1.
• C. The cross-price elasticity of sandwich-waffle makers and waffle makers is -2.
• D. Sandwich-waffle makers and sandwich toasters are likely to be substitute products.
• E. Sandwich-waffle makers and waffle makers are complementary products.

Telcon, a mobile phone manufacturer, sells its flagship product, Pute, at $250 per unit. The fixed cost
incurred by the company is $500,000, and the variable cost per unit is $150. What is the profit earned
by Telcon if it sells 100,000 units of Pute?

• A. $100,000
• B. $500,000
• C. $20,000,000
• D. $9,500,000
• E. $7,500,000

A firm sells 20,000 units of a particular product at a price of $50 per unit. The company spends $30
per unit in raw materials and labor charges. What are company's fixed costs if it made a profit of
$100,000?

• A. $100,000
• B. $200,000
• C. $300,000
• D. $400,000
• E. $500,000

What does the break-even point refer to in a break-even analysis?

• A. It refers to the number of product units sold at which point both loss and profit are zero.
• B. It refers to the point at which the fixed costs curve intersects the variable costs curve.
• C. It refers to the required number of products that should sell for the profit to equal the fixed costs.
• D. It refers to the point at which the variable costs start increasing over fixed costs.
• E. It refers to the point at which the total costs are equal to the profit generated.

In Travnia, an industrial country, the government controls most of the utilities, including power and
water supply. The bottled-water market, however, has four major players: Balk, Pentl, Valr, and
Tidum. Each of the companies markets its product using a distinct branding strategy. In an attempt to
gain a larger market share, Pentl reduces the price of its products by 10%. It expects to make up for
the lost revenue from an increase in sales. Which of the following is true of this scenario?

• A. The government's control of most of the utilities including power and water supply represents monopolistic competition.
• B. The power supply industry in Travnia is oligopolistic in nature.
• C. The competition in the bottled-water industry represents pure competition.
• D. Pentl's current pricing strategy can be termed as predatory pricing.
• E. A price war would erupt if the other firms reduced prices, too, and forced Pentl to reduce prices further.

Pop-Mart, a chain of discount stores in the U.S., procures its products from many suppliers. Indigo is
one among hundreds of other suppliers who supply poultry products to Pop-Mart and other retailers.
The price of the products is often dictated by the demand from consumers. Which of the following is
true of this scenario?

• A. Pop-Mart's competition with other retailers represents pure competition.
• B. Indigo is competing in an oligopolistic market and depends on competitors to increase product prices.
• C. Indigo can carve an identity for itself and move into a monopolistically competitive market by branding its poultry products.
• D. Pop-Mart's suppliers cannot decommoditize their products in order to make more money.
• E. The large number of suppliers indicates that the poultry industry indicates monopolistic competition.

A seller's costs are usually determined during or after a product is made, with a specified percentage
or dollar amount added to the cost to establish a price. In this case, the organization is using _____
pricing.

• A. skimming
• B. demand-based
• C. differential
• D. cost-plus
• E. expense-based

Fin, an online clothes retailer, sells products from multiple brands. Some of the brands are expensive.
Clling, a brand of t-shirts, usually sells products at more than $50 a piece. During Christmas,
however, Fin offers a 25% discount on Clling that entices non-regular customers of Clling to pick up
its products. The increase in sales volume offsets the discount offered. In this case, Fin is using a ____
pricing strategy.

• A. status quo
• B. target return
• C. everyday low
• D. high/low
• E. predatory

A Macy's manager designs the casual clothing department such that one of Macy's private label pairs
of jeans, priced at $24.99, is positioned next to a national brand of jeans, such as Levis, priced at
$39.99. What is the manager attempting to accomplish?

• A. Everyday low prices strategy
• B. Odd-even pricing strategy
• C. Prestige pricing strategy
• D. Special-event pricing strategy
• E. Reference pricing strategy