# Suppose that the fixed cost for a product is \$400 and the break-even quantity is 80. find the marginal profit (the slope of the linear ptofit function)

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Posted on Jan 02, 2017

Hi,
I think you should refer to you definitions. The 20% is called the markup. The profit margin is calculated with respect to the revenue. So you should divide the 400\$ by 2400\$ to get a net profit margin of 400/2400 =0.1667 or 16.67% (And we are not taking into account the taxes).

Margin = Markup /(price + Markup)
Markup = Margin* (Price +Markup)
Markup = Margin*Markup + Margin* Price
Markup*(1-Margin) =Margin*Price
Markup = Margin*Price/( 1-Margin)
For Price =2000, Margin =0.2 (that is 20%)
Markup = 0.2*2000(1-0.8) =0.2*2000/0.8
Markup = 2000*(0.2/0.8)= 2000*0.25 = 500

Thus to have a (net) profit margin of 20%, an item costing 2000\$ must be marked up by 500\$.

Try not to reason with numbers. Write the defining relation and use algebra to isolate for the variable you seek.

Hope it helps.
Thank you for using Fixya and for rating this solution.

Posted on Dec 01, 2009

Set C = R
This means 16X - 20000 = 14X
-20000 = -2X
Divide both sides by -2
10000 = X

This means that the break even point is 10000 units.

Posted on Jan 27, 2011

450 minus 65.06 minus 50 equals net
450 divided by net = percent of profit move decimal 2 places to the right

Posted on Nov 02, 2016

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### I must not understand what a margin is so could someone explain, the instructions give this example: If I purchase something for \$2000 and want to make a 20% profit I would need to sell it for \$2500 (2000...

Hi,
I think you should refer to you definitions. The 20% is called the markup. The profit margin is calculated with respect to the revenue. So you should divide the 400\$ by 2400\$ to get a net profit margin of 400/2400 =0.1667 or 16.67% (And we are not taking into account the taxes).

Margin = Markup /(price + Markup)
Markup = Margin* (Price +Markup)
Markup = Margin*Markup + Margin* Price
Markup*(1-Margin) =Margin*Price
Markup = Margin*Price/( 1-Margin)
For Price =2000, Margin =0.2 (that is 20%)
Markup = 0.2*2000(1-0.8) =0.2*2000/0.8
Markup = 2000*(0.2/0.8)= 2000*0.25 = 500

Thus to have a (net) profit margin of 20%, an item costing 2000\$ must be marked up by 500\$.

Try not to reason with numbers. Write the defining relation and use algebra to isolate for the variable you seek.

Hope it helps.
Thank you for using Fixya and for rating this solution.

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