ABSTRACT
Understanding the demand for a product and how sensitive this is to different prices is a difficult but important task. Profitability is unlikely to be optimized without this understanding, or worse, the company may endure financial hardship if prices lead to a fall in demand (cf. Figures 31.1 and 31.2). Some products are
highly price sensitive, while others are not so prone to fluctuations in demand caused by rising or falling prices. The analysis of demand generally also involves examining the cost base behind the product to ensure the break-even point, at the very least, is covered by the resulting revenue at a specific price point. The breakeven point = fixed costs/(price – variable costs).
