A start-up computer company is in the process of introducing their first line of computers. These computers are high in performance and "radically slim" in design but will cost the consumer only $1,800 (average retail price). It costs the computer company $500 per computer for the materials, $300 per computer for assembly, and $1,000 for every five computers in shipping. The machines are sold to retailers for $1,500.

After first year sales were projected to be a mere 15,000, the company decided to cut the manufacturer's selling price. Dealer's agreed to a retail price drop of $200 as long as their margin was close to 25%.