Brown Laboratory, that processes medical tests, has considerable competition in the marketplace, since there are a number of close substitutes and little substantive product differentiation. Brown has fixed costs of $200,000 and average variable costs of $5. The total potential market is estimated at 1 million units. The lab's administrator would like to maintain a 10 percent share of the market; and the plant has ample capacity.

a. What price would enable Brown to break even at a sales volume representing 10 percent of the market?

b. Suppose that Brown wants to obtain a profit equal to 20 percent of fixed cost. Now what price should be charged?