Final answer:
The maximum demand loss to break-even after increasing the price by $10 is 2000 units because the original demand is 2000 units and the calculation assumes there are zero fixed costs.
Step-by-step explanation:
The question is asking to calculate the quantity of demand that can be lost to break-even if the price of the product is increased from $20.00 to $30.00, given the original demand is 2000 units, variable cost is $10.00 per unit, and the contribution margin is $10.00 at the price of $20.00 per unit.
First, we calculate the break-even point in terms of revenue by using the formula:
- Total fixed costs = Original demand × Contribution margin per unit
Since we only have variable costs, we can assume total fixed costs are zero for this calculation. Then we determine the new contribution margin per unit after the price increase:
- New price per unit = $20.00 + $10.00 = $30.00
- New contribution margin per unit = $30.00 - $10.00 = $20.00
Next, we calculate how many units need to be sold at the new price to break-even:
- Break-even quantity = Total fixed costs / New contribution margin per unit
Given that total fixed costs are zero:
- Break-even quantity = 0 / $20.00 = 0 units
However, since the question is about the loss in demand, we find the difference between original and break-even quantity:
- Maximum demand loss = Original demand - Break-even quantity
- Maximum demand loss = 2000 units - 0 units
- Maximum demand loss = 2000 units