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Consider the following two products marketed by the same company:

Product 1 Product 2

Price per Unit $50 Price per Unit $150

Monthly Unit Sales 200 Monthly Unit Sales 100

Revenue $10,000 Revenue $15,000

Cost of Goods Sold $3,000 Cost of Goods Sold $10,000

Gross Profit $7,000 Gross Profit $5,000

Fixed Costs $4,000 Fixed Costs $4,000

Net Profit $3,000 Net Profit $1,000

1. For each of the two products, determine the following:

Product 1 Product 2

Variable Cost per Unit

Unit Contribution

Profit per Unit

2. What is the break even unit sales for each product?

3. Suppose that 50 customers switched from Product 1 to Product 2, making unit sales of the two products equal. What would happen to the profitability of Product 1?

4. What would happen to the profitability of Product 2?

5. Suppose that instead, 50 customers switched from Product 2 to Product 1. What would happen to the profitability of the company?