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Managerial Economics by Donald N. Stengel

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The Impact of Price Changes

In the preceding analyses of the ice cream venture, we assumed ice cream bars would be priced at $1.50 per unit based on the price that was charged in the previous summer. The students can change the price and should evaluate whether there is a better price for them to charge. However, if the price is lowered, the breakeven level will increase and if the price is raised, the breakeven level will drop, but then so may the customer demand.

To examine the impact of price and determine a best price, we need to estimate the relationship between the price charged and the maximum unit quantity that could be sold. This relationship is called a demand curve. Demand curves generally follow a pattern called the law of demand ...

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