# Change in Selling Price

## Introduction

Here we will look at the effects of changes in selling price, fixed costs, and variable costs on the net income and break-even point.

The use of graphs can also help us with break-even analysis.

We usually call the graph showing the total revenue and the total cost graphs together a break-even chart.

This chart is an easy visual way to analyze the financial position of a business for different number for units

sold (sales volume) or produced (volume of output).

We can see at a glance the amount of profit or loss that is generated for different levels of sales or production.

## Change in Selling Price

A change in the selling price per unit will cause a change in the total revenue equation.

An increase in the selling price will cause an increase in the total revenue;

the TR graph will have a greater slope. A decrease in the selling price will cause a decrease in the total revenue;

the TR graph will have a smaller slope.

The higher the selling price, the lower the level of the break-even point and

the higher the profit level provided that the variable costs and the fixed costs remain the same.

Example: The graph shows the effect of an increase and a decrease in the selling price per unit.

TC is the total cost graph.

The graph below shows this effect:

The graphs depicts the following:

- The TR1 graph has a slope of 60. Its equation is TR1 = 60Q. The selling price per unit is $60.
- The TR2 graph has a slope of 80. Its equation is TR2 = 80Q. The selling price per unit is $80.
- The TR3 graph has a slope of 50. Its equation is TR3 = 50Q. The selling price per unit is $50.
- The break-even point is lower for TR2 and higher for TR3.

Please access the following link to do a similar exercise about change in selling price:

*Change Selling Price exercise with solution*

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Date of last modification: March 19, 2019