Optimal Price for Break-Even Point
Find the price that minimizes volume while maximizing profit
Optimal Break-Even Price Theory
Goal
Choose the price that yields the lowest break-even volume while maintaining market demand and profit margin.
Trade-off
Higher price → lower volume needed, but demand may drop. Optimal price balances margin vs. volume.
3-Step Optimal Price Method
- Calculate break-even volume at different prices.
- Estimate demand (or elasticity) at each price.
- Select the price with the lowest break-even volume that still meets demand.
Worked Example
Input
Fixed Costs: $10,000
Variable Cost: $20/unit
Demand Estimates:
| Price | Demand |
|---|---|
| $30 | 600 |
| $35 | 500 |
| $40 | 400 |
Calculation
Break-Even @ $30 = 10,000 ÷ (30 − 20) = 1,000 units
Break-Even @ $35 = 10,000 ÷ (35 − 20) = 667 units
Break-Even @ $40 = 10,000 ÷ (40 − 20) = 500 units
Break-Even @ $35 = 10,000 ÷ (35 − 20) = 667 units
Break-Even @ $40 = 10,000 ÷ (40 − 20) = 500 units
Optimal price = $35 (lowest BE volume ≤ demand).
Optimal Price Calculator
Optimal Price: $—
Break-Even Volume: —
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