Several Factors Indicate That a Penetration Pricing Policy Would Most

question 285

Multiple Choice

Several factors indicate that a penetration pricing policy would most likely to be effective when introducing a new product,including situations in which

• A)lowering the price has only a minor effect on increasing the sales volume and reducing the unit cost
• B)the high initial price will not attract competitors
• C)customers interpret the high price as signifying high quality
• D)enough prospective customers are willing to buy immediately at the high initial price to make these sales profitable
• E)many segments of the market are price sensitive

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Definitions:

Contribution Margin Ratio

The proportion of sales revenue that is not consumed by variable costs and therefore contributes to covering fixed costs.

Fixed Expenses

Costs that remain constant for a period of time regardless of production levels or business activity.

Combined ROI

The total return on investment generated from a set of investments or projects, combined into a single measure.

Net Operating Income

Represents the profit a company generates from its operations, minus all operating expenses except interest and taxes.