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PERFORMANCE CHARACTERISTICS
Demand
Price
TR
Revenue, P
TR = pD = (a bD)D
TR = aD bD2
b = slope
Revenue, P
Demand
Price Equation:
TR
p = a bD
Units of Output (or Activity Level), D
TR = pD
CE 22 Engineering Economy General Economic Environment
Breakeven Analysis
Case 1: When Price is a function of Demand
Cost, P
CT
CF
Units of Output (or Activity Level), D
CT
TR
Revenue/Cost, P
CV = cvD
CV = cvD
CF
BEP1
BEP2
CT = CV + CF = cvD + CF
Where:
CT = total cost
CV = total variable cost
cv = variable cost per unit
D = units of output
CF = total fixed cost
Breakeven Condition:
TR = CT
aD bD2 = cvD + CF
0 = bD2 + (cv a)D + CF
D1, 2 =
(c v a ) (c v a ) 2 4bC F
2b
Revenue/Cost, P
TR
CV = cvD
CF
BEP1
Units of Output (or Activity Level), D
Breakeven Condition:
TR = CT
pD = cvD + CF
CF
D* =
p cv
where D* corresponds to the two breakeven points