Many Firms Use Odd Pricing-Charging Prices Such as

question 2

Multiple Choice

Many firms use odd pricing-charging prices such as $.99 instead of $1.00 and $9.99 instead of $10.00.One reason for this pricing strategy is that consumers will somehow believe that the difference in price appears to be greater than it actually is.Researchers conducted consumer surveys to determine whether this is actually the case.What was the result of these surveys?

• A)The surveys found that small differences in price cause small differences in quantity demanded. There is no evidence that odd pricing makes economic sense.
• B)Although the results were not conclusive, there is some evidence that odd pricing makes economic sense.
• C)The surveys found indifference regarding this strategy among most consumers, but hostility among other consumers. The latter group resented what they viewed as an attempt to fool them into buying products with odd prices. Researchers concluded that odd pricing is counterproductive.
• D)The survey results were inconclusive because most consumers gave unreliable responses to the survey questions.

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Definitions:

Minimum Required Rate

The lowest return rate necessary for an investment to be considered acceptable.

Net Present Value

Net Present Value (NPV) is a calculation used to determine the current value of a series of future cash flows, taking into account a specified rate of return.

Required Rate

Often referred to as the discount rate or required rate of return, it is the minimum return an investor expects to receive for investing in a project or business.

Net Present Value

A method of evaluating the attractiveness of an investment project, by determining the present value of its expected future cash flows minus the initial investment.