Final answer:
The break-even point in units sold is the point where a company's total revenue equals total costs, resulting in zero profit or loss.
Step-by-step explanation:
The break-even point in units sold is the point at which a company's total revenue is equal to its total costs, resulting in zero profit or loss. It is the point where the firm is covering all its costs and is neither making a profit nor incurring a loss. This point can be found by analyzing the relationship between price, average cost, and average variable cost.
If the price at which a firm is selling its product is greater than the break-even point, then the firm is earning profits. If the price is exactly at the break-even point, then the firm is making zero profits. But if the price falls below the break-even point, the firm is making losses. However, if the price falls below the shutdown point, the firm will shut down immediately as it is not even covering its variable costs.
For example, let's say a company produces and sells a product at $10 per unit. The average variable cost per unit is $7, and the total fixed costs are $100,000. To find the break-even point, divide the total fixed costs by the difference between the price and the average variable cost: ($100,000) / ($10 - $7) = 33,333 units. Therefore, the company needs to sell at least 33,333 units to reach the break-even point.