Georges Tshirt Shop Georges TShirt Shop produces 5000 custom

George’s T-shirt Shop George’s T-Shirt Shop produces 5,000 custom printed T-shirts per month. George’s fixed costs are $15,000 per month. The marginal cost per T-shirt is a constant $4. What is his breakeven price? What would be George’s breakeven price if George were to sell 50% more shirts?

Solution

(a)

If breakeven price be P, then in breakeven,

Revenue - Total variable cost = Fixed cost

5,000 x (P - 4) = 15,000

P - 4 = 15,000/5,000 = 3

P = 3 + 4 = $7

(b)

50% more shirts means new number of shirts = 5,000 x 1.5 = 7,500

7,500 x (P - 4) = 15,000

P - 4 = 15,000/7,500 = 2

P = 2 + 4 = $6