Compute monthly break-even subscribers
Overview
This question evaluates a candidate's ability to perform break-even analysis using basic algebra and financial modeling, specifically computing subscriber thresholds and interpreting how changes in price and costs affect profitability.
Break-even Analysis for a Subscription Streaming Service
Context
A streaming startup incurs monthly fixed costs and per-subscriber variable costs and charges a monthly subscription price. Compute the monthly break-even subscriber count under different scenarios.
Given
- Fixed cost per month: F = $100 million
- Variable cost per subscriber per month: v = $4
- Price per subscriber per month: p = $9
Tasks
(a) Compute the monthly break-even subscriber count N*. Show the formula, plug in values, and include units.
(b) If price increases to $10 with costs unchanged, recompute N*.
(c) If fixed cost rises to 9 and v = $4, recompute N*.
State any assumptions about timing and recognition of revenue and costs explicitly.
Solution
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