Stay-even Analysis

Stay-even analysis tells you how many unit sales you can lose before a price increase becomes
unprofitable. it shows whether increase or decrease in price is profitable.

Formula:
Stay-even quantity = %ΔP ___
(%ΔP + Contribution Margin)
Contribution Margin = (P-MC)_________
P

Comparing the stay-even analysis and the predicted Δ in quantity (using elasticity)

Decision is:
If the predicted quantity is less than the stay-even quanity, then the price increase will likely be
profitable, and vice versa
If:
e(%ΔPrice) < %ΔP _ = change in price is profitable
(%ΔP + Contribution Margin)
in comparing:
decrease in quantity = positive
increase in quantity = negative

The stay even quantity for a 5% price increase for a firm with a 40% contribution margin and elasticity is
-2.
Stay-even quantity = 5% ___
(5% + 40%)
Stay-even Quantity = 11.1% decrease;
11.1 = no change in profit

Predicted Quantity = -2(5%)

Predicted Quanitity = 10% decrease

Since
11.1% > 10% = the change in price is profitable

The stay even quantity for a 5% price increase for a firm with a 40% contribution margin and elasticity is
-2.
Stay-even quantity = 11.1% increase

Predicted Quantity = 10% increase

(11.1%) < (10%) = the change is not profitable