What Price is the Best Choice?
The best price choice depends on the cost to produce and market the product. In this example, the cost will be set at $5 per item.
Price Set High
If the price is set high, the earning potential is $10 – $5 = $5, as long as this applies to a high-value consumer. These sales happen only 50% of the time, so the anticipated profit is $2.50.
Price Set Low
If the price is set low, the product sells for this price all the time and the earning potential is $7 – $5 = $2. So when the price is high, half as many products are sold, but each item sold earns $0.50 more.
