A company is considering launching a new product priced at $40 per unit with a variable cost of $25 per unit, which might cannibalize the sales of an existing product. The manager projects that they will sell 8,000 units of the new products a year. Suppose the existing product is priced at $60 per unit with a variable cost of $40 per unit. Without launching the new product, the sales of the existing product are 5,500 units a year.

What is the break-even rate of cannibalization (BERC)?

Do you think it is profitable for the company to launch the new product (assuming the fixed cost is zero when launching the new product)?

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