Another cost-oriented pricing approach is break-even pricing(or a variation called target profit pricing). The firm tries to determine the price at which it will break even or make the target profit it is seeking. This pricing method is also used by public utilities, which are constrained to make a fair return on their investment. Target pricing uses the concept of a break-even chart, which shows the total cost and total revenue expected at different sales volume levels. Figure shows a break-even point. Fixed costs are same regardless of sales volume. Variable costs
are added to fixed costs to form total costs, which rise with volume. The total revenue curve starts at zero and rises with each unit sold.
The manufacturer should consider different prices and estimate break-even volumes, probable demand, and profits for each.
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