1. A manufacturer is considering incurring $60,000 in research and development costs in order to produce a more sensitive electronic thermostat. The materials and labor costs for the production and sale of this product are $1.60 per unit.

Calculate the breakeven sales level for this product if it is priced at $2.20 per unit.

Calculate the products breakeven sales level if it is priced at $4 per unit.

Explain the implications of the difference between these two breakeven sales levels.

2. When setting prices, what is the difference between how you would take into account an incremental fixed cost and how you would take into account a fixed cost that is not incremental?

3. Describe the distribution of brand price elasticities typically observed. Why is it useful for a pricing manager to be aware of this distribution?