Question

Globe Travel Agency sells Spring Break trips to University of Houston undergraduate students. The fixed cost of Globe is $100,000 and its variable cost is $400 for every student who takes the trip Globe offers. The price elasticity of demand is -2.5 at all levels of price. At present, the price of the trip is $600/student and, at this price, demand is 1200 units. Assume that the number of trips sold always equals demand.

Required:
Compute the breakeven quantity at current price, P =$600.

Answer 1

the breakeven quantity at current price is 500 units

Step-by-step explanation:

The computation of the breakeven quantity at current price is shown below:

Breakeven point = Fixed cost ÷ (Price per unit - variable cost per unit)

= $100,000 ÷ ($600 - $400)

= 500 units

Hence, the breakeven quantity at current price is 500 units

We simply used the above formula so that the correct units could arrive