Suppose you were starting a graphics printing business. It will cost you $2000 for a computer and commercial ink jet printer. You estimate variable costs at $.60 per page (paper, ink, your time), and you think you can price at $1.00 per page. Please show work.
a. What is your breakeven?
b. You want to consider a color laser printer instead of an ink jet. The fixed costs would be $4000 and the variable costs would be $.50 per page. What is your breakeven?
c. At what quantity would you be indifferent between the inkjet and the laser printer?
d. You expect demand to be 15,000 pages: which would you choose? What is your expected profit?
e. Suppose you can shop around and the laser printer can be found for $800 less. Now at what volume are you indifferent? Which printer would you choose? What is your expected profit at 15,000 pages?
f. If you buy ink cartridges in bulk, you can reduce your variable costs for the ink jet solution to $.55 per page. What happens to your analysis now?
g. What happens if you can raise your price to $1.10 per page?