Multiple Choice Questions
1. Strand’s Hardware Store is a locally owned and operated hardware store located in Richmond, Virginia. The store is known for its great customer service and knowledgeable salespeople. The store’s primary competition includes a large national chain hardware and lumber store. Strand’s strategy for obtaining a competitive advantage is probably:
a. A cost leadership strategy
b. A differentiation strategy
c. A focusing strategy
d. A combination strategy

2. If the demand for a product does not vary with price, the product is described as:
a. Competitive
b. Profitable
c. Inelastic
d. Price sensitive

3. In cost-plus pricing, the markup percentage:
a. Is determined by market conditions
b. Is typically calculated as a percentage of a base cost such as cost of goods sold or direct materials
c. Is usually set by the board of directors and stated in the company’s articles of incorporation
d. All of the above

4. When the price of a product is established by market conditions, and firms determine the desired cost of the product that must be met in order to reach a target profit, the company is using:
a. Penetration pricing
b. Market pricing
c. Target pricing
d. Cost-plus pricing
5. When foreign companies sell products in the United States below cost in order to drive out competition, the practice is called:
a. Predatory pricing or dumping
b. Price skimming
c. Penetration pricing
d. Price gouging

6. An automobile manufacturer is developing a new hybrid gas/electric car with a target price of $22,000. In order to maintain a target profit equal to 25 percent of the new model’s cost, the target cost must be:
a. $5,500
b. $17,600
c. $19,500
d. $27,500

7. Taking advantage of external linkages may include:
a. Involving suppliers in the inventory management process
b. Asking suppliers to redesign parts
c. Developing long-term relationships with suppliers
d. Working with customers to reduce the costs of disposing of a product
e. All of the above