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The owner of a relatively small business is trying to determine the breakeven level of sales of the company's main product. The fixed cost of manufacturing this product each month is $50,000. The variable cost of producing this product is $85 per unit. The current selling price is $120. The business owner knows that demand for this product is influenced by price. Using some limited historical data, the owner decided to model the relationship between price and demand with the following step function: Selling price Demand 95 2500 105 2250 115 2000 125 1750 135 1500 145 1250 150 1000 165 750 175 500 185 250 195 0 So, if the price is set to anywhere between $95 (inclusive) and $104.99, the predicted demand level is 2500. If price is between $145 (inclusive) and $154.99, the predicted demand level is 1250, and so on. We'll call this relationship the Selling Price Function (or SPF for short). In this case, the SPF is essentially a lookup table. Find the break even selling price (i.e. the value of selling price that gives a profit of zero)
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1. Which Form of Economics is Best for Whom and Why?
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