3.3 Break-Even

Question 1

Define Break-Even.

Answer 1

when a business sells enough goods and/or services in order
to cover all its costs of production, i.e. the output level where the business does not make a profit or a loss.

Question 2

Define Contribution per Unit.

Answer 2

Contribution per unit = P — AVC

Question 3

Define Total Contribution.

Answer 3

Used to work out profit or loss. Total contribution = (P - AVC)x Q

Question 4

When does the business make a loss.

Answer 4

When the firm sells less than the BEQ), it makes a loss. When it sells more than the BEQ), the business earns profit.