Final answer:
The break-even point occurs when a company's total costs and total revenue are equal, resulting in no profit or loss. It is calculated by dividing fixed costs by the difference between unit selling price and variable cost per unit. Knowing this point is essential for businesses to understand the minimum sales required to avoid losses.
Step-by-step explanation:
The break-even point is a crucial concept in business and economics that indicates when a company is neither making a profit nor a loss. To calculate the break-even point, you can use the formula:
Break-even Point (Units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
This formula helps to determine the number of units that need to be sold at a given price to cover all fixed and variable costs. The figure 8.7 described divides the marginal cost curve into three zones. The point where marginal cost (MC) crosses average cost (AC) is called the break-even point. If the market price is exactly at the break-even point, then the firm is making zero profits.