A hotel offers the following quotations from its banqueting menu to companies enquiring about their annual Christmas dinner

Explain in your own words how the hotel can reduce its selling price based on the number of covers and still maintain or even increase its net profit percentage.

Where a business has high fixed costs and low variable costs there is great scope for a business to reduce price to stimulate demand. The increase in demand can compensate for the reduce price and reduced profit per person and as fixed costs do not react to sales volume fluctuations then profit can be at least maintained. 

For example in the above scenario if variable costs  amounted to 30% and fixed costs amounted to €1500 for the Christmas dinner then the profit statement would look as follows for all three prices.

As one can see although prices have fallen volume sales have increase and although variable costs have also increased contribution has increased and with fixed costs remaining the same, overall profit has increased. Thus the increase in volume sales and the fact that the businesses costs are mainly fixed has compensated for the reduced selling price.