SU 9: Decision Analysis & Risk Mgmt

Question 1

Price Elasticity of Demand

Answer 1

Percentage change in quantity demanded/Percentage change in price

Question 2

Demand Elasticity Coefficient (>1)

Answer 2

Demand is in a relatively elastic range. A price decrease will cause an increase in total revenue

Question 3

Demand Elasticity Coefficient (=1)

Answer 3

Demand has unitary elasticity

Question 4

Demand Elasticity Coefficient (<1)

Answer 4

Demand is in a relatively inelastic range. A price increase will result in little or no decline in the amount demanded

Question 5

Demand Elasticity Coefficient (Infinite)

Answer 5

Demand is perfectly elastic

Question 6

Demand Elasticity Coefficient (=0)

Answer 6

Demand is perfectly inelastic

Question 7

Peak-Load Pricing

Answer 7

Prices vary directly with capacity usage (i.e. Public utilities)

Question 8

Cartel

Answer 8

A collusive oligopoly. Its effects are similar to those of a monopoly. Each firm will restrict output, charge a higher price, and earn maximum profit.

Question 9

Competition-Based Pricing

Answer 9

Going-rate or Sealed-bid pricing

Question 10

Price Skimming

Answer 10

The practice of setting an introductory price relatively high to attract buyers who are not concerned about price and to recover R&D costs

Question 11

Penetration Pricing

Answer 11

The practice of setting an introductory price relatively low to gain deep market penetration quickly

Question 12

Discriminatory Pricing

Answer 12

Adjusts for differences among customers, the forms of a product or locations

Question 13

Value Pricing

Answer 13

Entails redesigning products to improve quality without raising prices or offering the same quality at lower prices

Question 14

Product-Line Pricing

Answer 14

Sets price steps among the products in the line based on costs, consumer perceptions, and competitor’s prices

Question 15

Optional-Product Pricing

Answer 15

Requires the firm to choose which products to offer as accessories and which as standard features to a main product

Question 16

Captive-Product Pricing

Answer 16

Involves products that must be used with a main product (i.e. razor blades with a razor)

Question 17

By-Product Pricing

Answer 17

Usually sets prices at any amount in excess of storing and delivering by-products

Question 18

Product-Bundle Pricing

Answer 18

Entails selling combinations of products at a price lower than the combined prices of the individual items

Question 19

Cost-Based Pricing

Answer 19

Begins with a cost determination followed by setting a price that will recover the value chain costs and provide the desired return on investment

Question 20

Value-added Costs

Answer 20

Costs of activities that cannot be eliminated without reducing the quality, responsiveness, or quantity of the output required by a customer

Question 21

Locked-in Costs

Answer 21

Will result in use of resources in the future as a result of past decisions

Question 22

Target Pricing

Answer 22

The expected market price for a product or service, given the company’s knowledge of its consumers’ perceptions of value and competitors’ responeses

Question 23

Market-Based Pricing

Answer 23

Involves basing prices on the product’s perceived value and competitor’s actions rather than on the seller’s cost

Question 24

Promotional Pricing

Answer 24

Temporarily reduces prices below list or even cost to stimulate sales

Question 25

Hazard Risks

Answer 25

Risks that are insurable. (i.e. - natural disasters, the incapacity or death of senior officers, sabotage, and terrorism).

Question 26

Operational Risks

Answer 26

The risks related to the enterprise's ongoing, everyday operations

Question 27

Financial Risks

Answer 27

Encompasses interest-rate risk, exchange-rate risk, commodity risk, credit risk, liquidity risk, and market risk

Question 28

Strategic Risks

Answer 28

Global economic risk, political risk, and regulatory risk

Question 29

Risk Avoidance

Answer 29

Brining to an end the activity from which the risk arises

Question 30

Risk Retention

Answer 30

The acceptance of the risk of an activity by the organization (Self insurance)

Question 31

Risk Reduction

Answer 31

The act of lowering the level of risk associated with an activity

Question 32

Risk Sharing

Answer 32

The offloading of some loss potential to another party

Question 33

Risk Exploitation

Answer 33

The deliberate courting of risk in order to pursue a high return on investment

Question 34

Residual Risk

Answer 34

The risk of an activity remaining after the effects of any avoidance, sharing, or mitigation strategies.

Question 35

Inherent Risk

Answer 35

The risk of an activity that arises from the activity itself.

Question 36

Risk Management Process

Answer 36

1) Identify risks 2) Assess risks 3) Prioritize risks 4) Formulate risk responses 5) Monitor risk responses

Question 37

Risk Appetite

Answer 37

The degree of willingness of upper management to accept risk is termed the organization's risk appetite

Question 38

Uniform delivered pricing

Answer 38

The company charges the same price, inclusive of shipping costs, to all customers regardless of their location