Final answer:
To find the quantity of units that must be sold to attain a target profit, calculate the output level where total revenue minus total cost equals the desired profit. For a firm in a perfectly competitive market, this involves analyzing where total revenue most exceeds total cost. The profit equation, Profit = (Price)(Quantity produced) - (Average cost)(Quantity produced), aids in determining the profit-maximizing output quantity.
Step-by-step explanation:
The task of finding the quantity of units that must be sold to attain the target profit is a core concept in business studies, particularly under the topics of economics and managerial accounting. It involves understanding the relationship between costs, revenue, and profit. To calculate the quantity of output that provides the highest level of profit, you must analyze at what level of production total revenue exceeds total cost by the largest margin. For a firm operating in a perfectly competitive market, where the price per unit is set by market demand and supply, each unit sold contributes the same amount to total revenue.
To find the profit-maximizing quantity, you compare the total costs and total revenues at different output levels. When total revenue is greater than total costs, the firm is making a profit. The maximum profit is achieved at the output level where this difference is the largest. As given in the example, maximum profit occurs when the output quantity is between 70 and 80, at which the profit is $90. If a firm aims for a specific target profit, it must adjust its output level to achieve this desired profit level, keeping in mind the market price and average cost per unit.
In summary, the firm's profit equation can be expressed as: Profit = (Price)(Quantity produced) - (Average cost)(Quantity produced). The firm should choose the output quantity where this equation yields the target profit or highest profit possible. This involves strategic decision-making and a good understanding of the market dynamics and cost structures.