Final answer:
The statement in question is true; breakeven is the point at which sales equal total costs, covering both fixed and variable costs. Below this point, a firm operates at a loss and must decide whether to continue producing or to shut down. The decision-making process involves both short-run and long-run cost analyses.
Step-by-step explanation:
The statement 'Breakeven indicates that the sales dollars cover all fixed and variable costs of manufacturing' is true. At the breakeven point, a firm's total revenue is exactly equal to its total costs, meaning the firm is not making a profit, but it is also not incurring losses. This signifies that both fixed costs (costs that do not change with the production volume) and variable costs (costs that vary with the level of output) are covered.
In a short-run perspective, a firm must consider its fixed costs, which are sunk and immutable, and variable costs, which typically increase with production due to diminishing marginal returns. Below the breakeven point, the firm's price is less than its average cost, resulting in operational losses. The firm must thus decide whether to continue operations and sustain losses or to shut down temporarily. From a long-run perspective, firms must analyze fixed and variable costs to determine the optimal production quantity and pricing strategy by the market structure they are in.