Question

A startup company is currently selling each unit of its product for $10.00 less than its total costs per unit. If the startup has an opportunity to expand its customer base by 10% through a marketing campaign, should the company consider the campaign?

Answer 1

Answer:

Yes, if the additional customer would lower the average cost enough to make the firm profitable.

Explanation:

As a start-up company, the initial cost is high due to more inclusion of fixed cost and number of units sold is lower resulting in the high average fixed cost per unit. However, when the market campaign is done, the sales units is expected to increase by 10% which will result in dilution of average fixed cost which may result in the company being come in profit situation.

Answer 2

Answer:

Yes, the company should consider the campaign.

Explanation:

If the additional customers would lower the average cost enough to make the firm profitable because as a start-up company, the initial cost is higher due to more inclusion of fixed cost which is non negotiable and number of units sold is lower due to lower customer base resulting in the high average fixed cost per unit.

Since the sales units is expected to increase by 10% after the market campaign is done, average fixed cost effect is lesser. The company may start profiting from that point on.