# Breakeven Analysis and Profit Maximization When the Firm Faces a Negatively Sloped Demand under Imperfect Competition

The following revenue and cost information for a future period is presented in Exhibit 20 for WR International, a newly formed corporation that engages in the manufacturing of low-cost, pre-fabricated dwelling units for urban housing markets in emerging economies. (Note that quantity increments are in blocks of 10 for a 250 change in price.) The firm has few competitors in a market setting of imperfect competition.

1. How many units must WR International sell to initially break even?

2. Where is the region of profitability?

3. At what point will the firm maximize profit? At what points are there economic losses?

Exhibit 20
Quantity (Q)Price (P)Total Revenue
(TR)
Total Costs
(TC)a
Profit
010,0000100,000(100,000)
109,75097,500170,000(72,500)
209,500190,000240,000(50,000)
309,250277,500300,000(22,500)
409,000360,000360,0000
508,750437,500420,00017,500
608,500510,000480,00030,000
708,250577,500550,00027,500
808,000640,000640,0000
907,750697,500710,000(12,500)
1007,500750,000800,000(50,000)

a Includes all opportunity costs

## Solution to 1:

WR International will initially break even at 40 units of production, where TR and TC equal 360,000.

## Solution to 2:

The region of profitability will range from 40 to 80 units. Any production quantity of less than 40 units and any quantity greater than 80 will result in an economic loss.

## Solution to 3:

Maximum profit of 30,000 will occur at 60 units. Lower profit will occur at any output level that is higher or lower than 60 units. From zero quantity to 40 units and for quantities beyond 80 units, economic losses occur.