Break-Even Point
The break even point is when the total costs equal the total revenue. Many businesses will calculate the
their firms total costs and ATC and plot these on a graph. The break even point on a graph is located where marginal cost hits the bottom of the average total cost curve. the firm will be a happy firm because they they know that they are doing the best that they possibly could be doing anything else because all of their opportunity costs are covered

If the firms marginal cost curve hits the bottom of their average variable cost curve then the firm will not care weather they operate or shut down. For any firm that performs on at the bottom of the ATC curve, they are performing in the most allocatively efficient way. This happens when the firm is in the long run, because firms will go in and out depending on the economic profit or loss. Usually in the long run the quantity increases for the public and the price lowers from short sun equilibrium. But, as I said before, the break-even point makes the allocation of the resources much more efficient, and the company "breaks-even" to produce zero economic profit. This isn't important for most firms who may be controlled by the government who makes restrictions on how much the company can produce.


external image lrequil.gif
As you can see, at point K, Quantity N and price B, the Marginal cost curve is at the
bottom of the ATC curve and it has reached it's break-even point.

sample question:
if a firm sells a product for 5 dollars per unit and that firms total costs implicit and explicit is 500 dollars how many units of this product must the firm make and sell to economically break even?

links:
http://en.wikipedia.org/wiki/Break-even
http://connection.cwru.edu/mbac424/breakeven/BreakEven.html
http://home.ubalt.edu/ntsbarsh/Business-stat/otherapplets/BreakEven.htm







sample question answer:
the firm must produce 100 units to break even