Quoted from btw75:
The market is inefficient and not a lot is known. I think if manufacturers really had a handle on the elasticity of demand we might of seen a lower price, or even a higher one -whichever option led to then most profit when quantity is considered. PPS had to take a guess and once started they couldn't really change drastically without negative consequences. Case in point, they didn't change pricing but added the 'standard' model which increased supply reducing demand, since this is a luxury good where some of the value is based on the value folks place on exclusivity.
This is only about the third or fourth time I've read a post and thought it was made by someone else with some higher education in economics, well said.
There was some validity in his overall point but yeah, that number is pretty high. The point of spreading the fixed costs across more units to keep the average cost per unit down is sound but I think we should assume that the guy running the business has put some thought into this as well.
If the marginal cost (per unit cost) was a smaller component than the fixed costs then it would absolutely make sense to shoot for a lower price point and a higher quantity sold. However since the marginal cost is a fairly high percentage of the average cost for a pinball machine its very risky to do that. If they set a price point based on the assumption spreading the fixed costs across 20000 units and then only sold 5000 despite the low price they would be losing their entire profit margin. Its much more plausible to work in the other direction, lowering prices down the line after the fixed costs have been recovered. You can't go back and ask customers for more money because you didn't end up selling as many units as you expected.