Optimal Price Analysis ;))

The Optimal Price Analysis is a mathematical computation that helps a business identify the point where it realize the maximum of profit.
This Optimal price calculator allows a business to accomplish the following:
Determine the quantity it needs to produce or sell in order to realize the maximum of profit;
Determine the selling price it needs to charge for a specific quantity you sell in order to realize the maximum of profit.

Definitions and terms used in the Optimal Price Analysis
Variable Cost per Unit: the cost that vary with the production or the purchase of one unit.
Fixed Cost (FC): the cost that remains constant within a range of production or sales, regardless of the number of units produced or sold within that range. Typical fixed costs are: rent, mortgage, equipment, salaries, insurance, fixed utilities (office utilities) etc.
Current selling price: the price that a unit is currently sold for.
Current selling units: the number of units currently sold or produced.
Maximum capacity (Units): the constraint regarding the maximum number of units that the company can produce or sell.
Maximum financing capacity: the constraint regarding the financing capacity of the company (bank accounts, credit cards, lines of credit etc.).
Price elasticity of demand (PeD): the responsiveness of the quantity demanded of a good or service to the increase or decrease in its price. As a general rule, sales increase with drop in prices and decrease with rise in prices.

Typically, PeD has a negative value. For our purpose, in order to make it easier for our users, we will consider the absolute value of PeD. By default we setup PeD as 1 (unit elastic).


The meaning of PeD value is:

Value Meaning

PeD = 0 Perfectly inelastic

0 < PeD < 1 Relatively inelastic or inelastic demand PeD = 1 Unit (or unitary) elastic 1 < PeD < ∞ Relatively elastic or elastic demand PeD = ∞ Perfectly elastic Optimal Price: the selling price where the company realize its maximum of profit. Optimal Units: the number of selling units to be sold in order to realize the maximum of profit. Total Variable Cost (VC): the cost that varies directly with the number of units produced or sold. Typical variable costs are: materials, packaging and shipping, sales commission, hourly wages, variable utilities (factory utilities) etc. Total Variable Cost = Selling Units x Variable Cost per Unit Total Cost (TC): total expenses incurred in the process of producing or selling a number of units. Total Cost (TC) = Fixed Cost (FC) + Total Variable Cost (VC) Total Revenue: the total sales value of the units produced or sold. Total Revenue = Selling Units x Selling Price per Unit Profit: the benefits from producing or selling a number of units. Profit = Total Revenue - Total Cost