Assume that we sell our product at $ 70 We could raise price to $ 75
Step 1. Define the parameters of the problem.
Fixed Variable Total Total Total Total Total Total
Quantity Cost Cost Cost Revenue Profit Cost Revenue Profit
40 4,000$ 520$ 4,520$ 2,800$ (1,720)$ 4,520$ 3000 (1,520)$
50 4,000 800 4,800 3,500 (1,300) 4,800 3750 (1,050)
60 4,000 980 4,980 4,200 (780) 4,980 4500 (480)
70 4,000 1,320 5,320 4,900 (420) 5,320 5250 (70)
80 4,000 2,000 6,000 5,600 (400) 6,000 6000 -
90 4,000 3,470 7,470 6,300 (1,170) 7,470 6750 (720)
Maybe six months.
Does Elasticity support this?
We can lower cost and also breakeven.
Step 2. Determine which Fixed Cost factors can be redefined.
Fixed Variable Total Total Total
Quantity Cost Cost Cost Revenue Profit
40 4,000$ 520$ 4,520$ 2,800$ (1,720)$
50 4,000 800 4,800 3,500 (1,300) Nothing Happens
60 4,000 980 4,980 4,200 (780)
70 4,000 1,320 5,320 4,900 (420)
80 4,000 2,000 6,000 5,600 (400)
90 4,000 3,470 7,470 6,300 (1,170)
Step 3. Redefine $ 400. of Fixed Cost as Variable Cost.
Fixed Variable Total Total Total
Quantity Cost Cost Cost Revenue Profit
40 3,600$ 920$ 4,520$ 2,800$ (1,720)$ Total Cost remains the same.
50 3,600 1,200 4,800 3,500 (1,300) Fixed Cost drops by $ 400.
60 3,600 1,380 4,980 4,200 (780) Variable Cost increases by $400.
70 3,600 1,720 5,320 4,900 (420)
80 3,600 2,400 6,000 5,600 (400) Really, Nothing changes.
90 3,600 3,870 7,470 6,300 (1,170)
Step 4. Eliminate $ 400. of Variable cost.
Fixed Variable Total Total Total
Quantity Cost Cost Cost Revenue Profit
40 3,600$ 520$ 4,120$ 2,800$ (1,320)$
50 3,600 800 4,400 3,500 (900) We will breakeven at 80 units.
60 3,600 980 4,580 4,200 (380)
70 3,600 1,320 4,920 4,900 (20) This could take years.
80 3,600 2,000 5,600 5,600 -
90 3,600 3,470 7,070 6,300 (770)
Step 5. Start over.
