Review Post: Break Even Problems

        The goal of break even problems is to find when total revenue is equal to total cost. Total revenue equals price per unit times the number of units. Total cost equals cose per unit times number of units plus any initial cost. Since you want revenue to equal cost, set price per unit times # of units equal to cost per unit times # of units plus initial cost.

        Companies might use this equation when they first start off to try to find out how many units they must create/sell to stop losing money. This equation assumes that every unit created will be sold, as the # of units is the same is in most cases the same in both the revenue and cost equations. In essence, this equation is finding how many units must be sold at an increased selling price (more than the cost) to balance out the initial cost, as businesses always need money to start up and need to make sure they can survive until they sell enough units to break even, and eventually start making money.

Remember, the final equation is:

(Price per unit)(# of units) = (cost per unit)(# of units) + initial cost.