Question: 1. Explain how experience curve pricing differs from average-cost pricing.
2. Construct an example showing that mechanical use of a very large or a very small markup might still lead to unprofitable operation while some intermediate price would be profitable. Draw a graph and show the break-even point(s).
3. The Davis Company's fixed costs for the year are estimated at $200,000. Its product sells for $250. The variable cost per unit is $200. Sales for the coming year are expected to reach $1,250,000. What is the break-even point? Expected profit? If sales are forecast at only $875,000. should the Davis Company shut down operations! Why?