A Penetration Pricing Policy Is MOST LIKELY to Be Effective

question 213

Multiple Choice

A penetration pricing policy is MOST LIKELY to be effective when: (1) __________; (2) a low initial price discourages competitors from entering the market;and (3) unit production and marketing costs fall dramatically as production volumes increase.

• 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:

Face Value

The nominal or dollar value printed on a financial instrument, such as a bond or stock certificate, representing its legal value.

Promissory Note

A financial document in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms.

Accounts Receivable

Amounts owed to a business by its customers for goods or services delivered or used but not yet paid for.

Note Duration

Note duration refers to the length of time until a financial note's principal and any accumulated interest are due to be repaid.