Marcella is the brand manager for the Microsoft XBox. She sells her product to Best Buy for $199 and Best Buy sells it at a retail price of $269 to consumers. Sales were going well; in 2008, Marcella sold 3 million units of the XBox. But now, sales were beginning to slow down.

To get sales moving again, Marcella wanted to launch a $20 million advertising campaign targeted to senior citizens which would feature the new XBox Fit game. Marcella knew that her product was very profitable, with variable costs of $100, so it seemed like she could afford to spend money advertising the product. She submitted her advertising plan to her boss Tess. Tess liked the idea, but asked Marcella how many incremental units of product she would have to sell to breakeven on the advertising investment, and whether this quantity was feasible, given current sales levels. What is the breakeven point? Can Marcella feasibly sell this quantity if she runs her advertising campaign? Why or why not?

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Breakeven point fixed investment price per unit var... View the full answer