Question

Rex's doughnuts can produce only 100 doughnuts a day. the variable cost incurred per unit is $2 and fixed costs incurred per day is $500. at what price should a doughnut be sold to break even?

Answer 1

The total cost that is incurred by producing 100 doughnuts is equal to the sum of the variable cost and the fixed cost. The total variable cost is,
    total variable cost = ($2/doughnut)(100 doughnuts) = $200

The total cost is,
   Total cost = total variable cost + total fixed cost
     TC = $200 + $500 = $700

Equating the cost and the revenue,
     TC = TR
     $700 = (100)(x)

The value of x from the equation is $7.

ANSWER: $7.