Plasiderm, Inc., sells a medical product. The company is currently selling the product for $18/unit and is considering whether it could increase profits by increasing the product’s price to $20/unit.
Plasiderm currently sells 50,000 units per week. Its current weekly operating data are as follows:
Sales revenue…………$900,000
Variable costs………...$400,000
Fixed costs …………...$250,000
Pretax profit………….$250,000
You can assume that per-unit variable costs do not vary with the level of production.
(a) What is the breakeven sales level for the price increase that Plasiderm is considering? Explain what this breakeven sales level means.
(b) If the sales level for this product decreased by 5,000 units per week after the price increase, what would be the change in Plasiderm’s weekly pretax profits caused by the price increase?
(c) What would be Plasiderm’s profit change if, after the price increase, sales remained at 50,000 units per week?