Once you have determined the break-even point for your product, you can use it to examine the effects of increasing or decreasing the role of fixed costs in your operating structure. The extent to which a business uses fixed costs (compared with variable costs) in its operations is referred to as operating leverage. The greater the use of operating leverage (fixed costs, often associated with fixed assets), the larger the increase in profit as sales rise and the larger the increase in loss as sales fall. The higher the break-even quantity for your product, the greater your business risk.

Let x be the number of units and p be the price of the item a company produces.

For this company, revenue is R ( x ) = p x and cost is C ( x ) = 100 x + 10000. Use these functions to support your conclusions to the following:

Suppose the company has a monopoly for this product so that it can set the price as it chooses. What are the benefits and the danger to the company of pricing its product at $1,100 per unit?

If the company has a monopoly for this product so that it can set the price, what are the benefits and the danger to the company of pricing its product at $101 per unit?