Assume that Cheryl’s Posters, a small poster retailer, has fixed operating costs of $2,500, its sale...

Assume that Cheryl’s Posters, a small poster retailer, has fixed operating costs of $2,500, its sale price per unit (poster) is $10, and its variable operating cost per unit is $5. Applying Equation 12.3 to these data yields

At sales of 500 units, the firm’s EBIT should just equal $0. The firm will have positive EBIT for sales greater than 500 units and negative EBIT, or a loss, for sales less than 500 units. We can confirm this by substituting values above and below 500 units, along with the other values given, into Equation 12.1.

Equation 12.1

EBIT=(P x Q)-FC-(VC x Q) (12.1)

Equation 12.3