A company has fixed costs of $20,000 and sells a product for $200 per unit, with variable costs of $120 per unit. If the price elasticity of demand for this product is -1.5, what is the minimum number of units the company must sell to break even, assuming a 10% increase in price due to the elasticity factor?

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Seekh · Accepted Answer

The price rises by 10 % to $220, so the profit per unit is $220 – $120 = $100. With fixed costs of $20,000, the break‑even quantity is $20,000 ÷ $100 = 200 units. Because the price elasticity of –1. 5 predicts a 15 % drop in quantity demanded, the firm still needs to sell 200 units to cover costs; selling fewer would leave a loss. For example, if the company sells 200 units, revenue is $44,000, total variable cost is $24,000, and total cost is $44,000, exactly breaking even.

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