PROBLEM 2:

You invested $50,000 of one-time R&D in year 1 and your fixed costs are

$10,000 per year and your variable costs are $5/unit. Assuming that your

product is completely inelastic (demand will not change depending on your

pricing decision) and expected demand is 5000 units/year, what would you need

to sell your product for (lowest price) to break even after 2 years?

PROBLEM 3:

Let's say that volume is not constant from PROBLEM 2 but is relatively inelastic

One option is to price it at $20 for a demand of 5000 units per year. The other

option is to price is at $16 for volume of 5500 units. What is the price elasticity?

How much profit over 2 years would you make under each of the 2 pricing

options in using the costs in Problem 2? Which pricing option would you go

with? Show total profitability.