Final answer:
To find the break even point where the target profit is $0, multiply the quantity produced by the unit price and average cost, then subtract the latter from the former. If total revenue equals total costs, the break even point is achieved. In this example, selling 75 units at $2.75 each, with the same amount in costs, the firm breaks even.
Step-by-step explanation:
The equation to determine how many units must be sold to attain a break even point (Target profit of $0) involves calculating the point where total revenue equals total costs. This can be expressed as:
= (Price)(Quantity produced) - (Average cost)(Quantity produced)
If both the selling price per unit and the average cost per unit are $2.75, and we produce 75 units, the calculation would be:
(75)($2.75) - (75)($2.75) = $206.25 - $206.25 = $0
This indicates that selling 75 units at $2.75 each will cover the total costs, and the firm will break even, making zero profit. It is critical to understand that in a perfectly competitive market, a firm cannot influence the market price, it rather accepts the prevailing market price determined by supply and demand.