Question

The _____________________ of a property is the occupancy level at which the gross income for the property equals total fixed and variable operating costs.

a) Break-even point
b) Profit margin
c) Capitalization rate
d) Depreciation threshold

Answer 1

The break-even point of a property is the occupancy level at which the gross income for the property equals total fixed and variable operating costs. It is the level of output where the marginal cost curve intersects the average cost curve at the minimum point of average cost (AC).

Step-by-step explanation:

The break-even point of a property is the occupancy level at which the gross income for the property equals total fixed and variable operating costs.

It is the level of output where the marginal cost curve intersects the average cost curve at the minimum point of average cost (AC). If the price is at this point, the firm is earning zero economic profits.

To illustrate, if a rental property has a break-even point of 80% occupancy, it means that the property needs to be occupied at least 80% of the time in order to cover all its costs and not incur any losses. If the occupancy level falls below the break-even point, the property would be operating at a loss.

Understanding the break-even point is important for property owners and managers as it helps determine the level of occupancy needed to cover costs and make a profit.