Q4. All the questions till now looked at a breakeven that assumes zero profit. But sometimes we ask: should we raise the price and sell fewer units or should we lower the price and sell more units? In which case will we make more money than the current situation? The following question is about that.

The healthy spring water company sells 10-gallon bottles of water for water fountains. It sells 2000 bottles a day at a price of $20. The companys daily revenues and costs are:

Sales revenues $40,000

Variable costs $16,000

Fixed costs $20,000

Although the company grew rapidly in the past decade, sales have been rather stagnant in the last year. The problem is that the market for spring water has grown large enough that grocery stores have begun to carry it at prices below those of healthy spring.

The company is considering raising the price by 15% and repositioning its water as a premium brand. Healthy Spring believes that it will be able to keep most of its loyal customers with a price increase. How many units loss can Healthy Spring tolerate before the price increase would become unprofitable?