PART 3 :Questions 11-20

Read the text below, then decide if each sentence is correct or incorrect.

In your answer sheet: write A if it is correct. write B if it is not correct.

PRICING

Companies’ pricing decisions depend on one or more of three basic factors: production and
distribution costs, the level of demand, and the prices (or probable prices) of current and potential
competitors. Companies also consider their overall objectives and their consequent profit or sales
targets, such as seeking maximum revenue, or maximum market share, etc. Pricing strategy must also
consider market positioning: quality products generally require “prestige pricing” and will probably not
sell if their price is thought to be too low.

Obviously, firms with excess production capacity, a large inventory, or a falling market share,
tend to cut prices. Firms experiencing cost inflation, or in urgent need of cash, tend to raise prices. A
company faced with demand that exceeds its possibility to supply is also likely to raise its prices.

When sales respond directly to price variations, demand is said to be elastic. If sales remain
stable after a change in price, demand is inelastic. Although it is an elementary law of economics that
the lower the price, the greater the sales, there are numerous exceptions. For example, price cuts can
have unpredictable psychological effects: buyers may believe that the product is faulty or of lower
quality, or will soon be replaced, or that the firm is going bankrupt, etc. Similarly, price rises convince
some customers that the product must be of high quality, or will soon become very hard to get hold of,
and so on!

A psychological effect that many retailers count on is that a potential customer seeing a price of
£499 will register the £400 price range rather than the £500. This technique is known as “odd pricing”.

Obviously most customers consider elements other than price when buying something: the “total
cost” of a product can include operating and servicing costs, and so on. Since price is only one element
of the marketing mix, a company can respond to a competitor’s price cut by modifying other elements:
improving its product, service, communications, etc. Reciprocal price cuts may only lead to a price war,
good for customers but disastrous for producers who merely end up losing money.

Whatever pricing strategies a marking department selects, a product’s selling price generally
represents its total cost (unit cost plus overheads) plus profit or “risk reward”. Overheads are the various
expenses of operating a plant that cannot be charged to any one product, process or department, which
have to be added to prime cost or direct cost which covers material and labour. Cost accountants have to
decide how to allocate or assign fixed and variable costs to individual products, processes or
departments.

Microeconomists argue that in a fully competitive industry, price equals marginal cost equals
minimum average cost equals breakeven point (including a competitive return on capital), and that a
company’s maximum-profit equilibrium is where extra costs are balanced by extra revenue, in other
words, where the marginal cost curve intersects the marginal revenue curve. In reality, many companies
have little idea what their optimal price or production volume is, while most microeconomists are
happier with their models than actually talking to production managers, marketers or cost accountants!
 11. There are three basic factors potentially involved in all pricing decisions.
12. When pricing a product, companies have to think of potential as well as existing competitors.
13. You are unlikely to sell high quality products at a low price.
14. When demand exceeds supply a company nearly always increases its prices.
15. A company faced with rising costs has to increase its prices.
16. A company can only change a price if it is “inelastic”.
17. Pricing is often strongly influenced by psychological factors.
18. A company can respond to competitors’ price cuts by changing different elements of the
marketing mix.
19. Prices generally take into account both direct and indirect costs.
20. In theory, a product’s price should equal its marginal cost and the company’s breakeven point.

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PART 5: Questions 26-35

Read the text below and choose the correct word for each space. For each question, mark
the correct letter A, B, C or D on your answer sheet.

TOM CRUISE

Tom Cruise is one of the (26) ______ successful actors in cinema history.
However, life hasn’t always been that easy for him. As a young boy, Tom was shy
and had (27) ______ in finding friends, although he really enjoyed (28) ______
part in school plays.

(29) ______ he had finished High School, Tom went to New York to look for
work. He found employment as a porter, and at the same time he (30) ______
drama classes. In 1980, the film director Franco Zeffirelli offered Tom his first part
in a film. Ten years later, he had become (31) ______ successful that he was one of
the highest-paid actors in Hollywood, (32) ______ millions of dollars for (33)
______ film.
Today, Tom (34) ______ appears in films and is as (35) ______ as ever with his thousands of fans
from all around the world.

26. A. most B. more C. best D.better

27. A. worry B. problem C. fear D. difficulty

28. A. making B. holding C. taking D. finding

29. A. While B. During C. After D. Until

30. A. prepared B. waited C. attended D. happened

31. A. so B. such C. too D. very

32. A. paying B. earning C. winning D. reaching

33. A. another B. all C. each D. some

34. A. yet B. ever C. already D. still