Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
When total revenue equals total costs
B
When marginal cost is at its lowest
C
When fixed costs are minimized
D
When average revenue exceeds marginal costs
Understanding the Answer
Let's break down why this is correct
Answer
In a perfectly competitive market, a firm determines its break-even point by comparing its total revenue to its total costs, which include both fixed and variable costs. The break-even point occurs when total revenue equals total costs, meaning the firm is not making a profit or a loss. To find this point, the firm looks at its marginal costs, which are the costs of producing one additional unit of a product. If the price at which the firm can sell its product is equal to the marginal cost of producing it, then the firm can cover its costs and break even. For example, if a firm sells each widget for $10 and it costs $10 to produce one more widget, the firm will break even when it sells enough widgets to cover all its costs.
Detailed Explanation
A firm breaks even when its total revenue matches its total costs. Other options are incorrect because Some might think that the lowest marginal cost means the best profit; Minimizing fixed costs sounds good, but it doesn't directly help find the break-even point.
Key Concepts
market structure
break-even analysis
Topic
Marginal Costs and Total Revenue
Difficulty
medium level question
Cognitive Level
understand
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