Final answer:
The contribution margin in break-even analysis is the sales price minus variable cost. Marginal cost is calculated by the change in total cost divided by the change in output, and it determines whether an additional unit adds to profit. Insight into profit generation comes from analyzing fixed, variable, and marginal costs.
Step-by-step explanation:
In break-even analysis, the contribution margin is defined as the sales price minus variable cost (Choice C). The contribution margin helps businesses determine how much revenue is available to cover fixed costs and contribute to profit after variable costs have been paid. To calculate marginal cost, we take the change in total cost, which is essentially the change in variable cost, and divide it by the change in output. This metric is crucial because it enables a firm to assess whether selling an additional unit is profitable by comparing marginal cost to the additional revenue.
While marginal costs are typically rising, understanding both variable and fixed costs is key to determining the firm's cost structure. This is vital for making decisions regarding the profit-maximizing quantity to produce and the price to charge. Thus, insights into profit generation emerge from splitting total costs into fixed and variable and using these figures for analyzing various cost measures, such as average total cost, average variable cost, and marginal cost. The final profit-maximizing strategies are devised by blending these cost analyses with sales and revenue evaluations within the context of the market structure.