To be profitable, a firm has to recover its costs. These costs include both its fixed and its variable costs. One way that a firm evaluates at what stage it

would recover the invested costs is to calculate how many units or how much in dollar sales is necessary for the firm to earn a profit.

Free Spirit Industries is considering a project that will have fixed costs of $$15,000,000.$ The product will be sold for $$37\mathrm{.}50$ per unit, and

will incur a variable cost of $$10\mathrm{.}75$ per unit.

Given the cost structure of Free Spirit, it will have to sell

units to break even on this project $(Q_{BE}).$

Marketing and sales director of Free Spirit Industries doesn't think that the firm's market is big enough for the firm to break even. In

fact, she believes that the firm will be able to sell only about $175,000$ units. However, she also thinks that the demand for Free Spirit's

product is relatively inelastic $($so the firm can increase the sales price without significantly decreasing the volume of product sold$).$

Assuming that Free Spirit can sell $175,000$ units, what price must it set to break even?

$$115\mathrm{.}75$ per unit

$$91\mathrm{.}64$ per unit

$$106\mathrm{.}11$ per unit

$$96\mathrm{.}46$ per unit