Problem: Richard Winchester, owner of Winchester Products, is considering whether to produce a new product. He has considered the operations requirements for the product as well as the market potential. Richard estimates the fixed costs per year to be $40,000 and variable cost for each unit produced to be approximately $50.
1) If Richard sells the product at a price of $70, how many units of product does he have to produce and sell in order to break even? Solve both graphically and algebraically.
2) Richard forecasts sales of 3,000 units if the selling price is set at $70, and 3,800 units if the selling price is set at $65. Which pricing strategy would you recommend to Richard? Why?