Final answer:
The break-even point is the sales level where total sales equal total costs, resulting in zero income or profit for a company. It occurs where the marginal cost curve intersects with the average cost curve at the minimum point of AC, indicating zero economic profits at that level of output.
Step-by-step explanation:
The sales level at which total sales equal total costs, resulting in zero income, is called the break-even point. This is a condition in which a company doesn't make a profit or suffer a loss. The break-even point can be visualized on a graph where the total revenue and total cost curves intersect; this typically happens at the level of output where the marginal cost curve intersects the average cost curve at the minimum point of the average costs (AC).
At the break-even point, total revenue for a perfectly competitive firm is equal to total costs, and this occurs where the price (P) equals average cost (AC) at the profit-maximizing level of output. In other words, the firm is earning zero economic profits at this point. Understanding where this point lies is crucial for business owners, as it helps them make decisions about pricing and production levels.