Question

A firm producing socks has a fixed cost of $20,000 and variable cost of $2 per pair of socks. Let x = the number of pairs of socks. Find the break-even point if the socks sell for $4.50 per pair.

Answer 1

Answer:

break even point = 8000 socks produced or $36000 in costs

Step-by-step explanation:

the cost function of the firm is

total cost = fixed cost + variable cost = $20000 + $2*Q

where Q= number of socks

the revenue from sales is

sales = Price* Q = $4.50*Q

the break even point is reached when the net profit is = 0 ( that is, the total cost is equal to the revenue from sales) , then

total cost = sales

$20000 + $2*Q =$4.50*Q

Q= $20000/($4.50-$2) = 8000 socks

that represents

total cost = $20000 + $2*8000  = $36000

then

break even point = 8000 socks produced or $36000 in costs