Question

The _____ is the point where total revenues equal total expanses?

1) break-even point
2) matched point
3) stabilization point
4) profit maximization point
5) point of highest revenue

Answer 1

The break-even point is where total revenues equal total expenses, resulting in zero economic profits for the firm. It's essential for understanding firm survival and market equilibrium.

Step-by-step explanation:

The correct answer is the break-even point. This is the level of output where the total revenues generated from the sale of goods or services equal the total expenses incurred in the production of those goods or services. At this point, the marginal cost curve intersects with the average cost curve at the minimum point of average cost. If the selling price of the product is set at the break-even point, the firm would be earning zero economic profits because total revenue would just cover total cost, which includes both variable and fixed costs.

This concept is vital to understand for a firm to make decisions regarding entry or exit in the long run because it affects the firm's ability to survive in a competitive market. Long-run equilibrium in a market occurs when all firms produce output at a level where price equals marginal revenue, marginal cost, and average cost, leading to zero economic profits.