Eastern Semiconductor is currently selling its most popular microchip for $220. It has been selling 4,000 of these chips per month. The company has learned, however, that next month an overseas competitor will enter the market and start selling a copy of this chip for $200. If Eastern maintains its price of $220 per chip, it expects its sales to decrease to 3,000 units per month.
(a) Given that Eastern’s variable costs for this product are $40 per chip, what is the breakeven sales level for Eastern decreasing its price by $20 price per chip?
(b) Do you think it is likely that Eastern will achieve this breakeven sales level?