Final answer:
At the break-even point, a company covers all costs, and the correct option is (b) Variable costs.
Step-by-step explanation:
At the break-even point, a company will not realize any profit, but it will also not incur a loss beyond the costs already spent. The option that correctly completes the sentence is (b) Variable costs. This is because at the break-even point, all of the revenue the company earns goes toward covering both the fixed and variable costs of production.
Fixed costs are sunk costs, meaning they are costs that have already been incurred and cannot be recovered, and so they must be paid whether or not any units are sold. Therefore, even if a firm has no sales, it still incurs fixed costs.
When a firm reaches its break-even volume of sales, it means that the total revenue it has brought in exactly matches the total costs, both fixed and variable. If the firm's price fell below the average variable cost (AVC), it wouldn't be able to cover the variable costs associated with producing goods. As a result, it would be less expensive for the firm to shut down production and avoid variable costs altogether while still incurring fixed costs.