Question

g "Problem-solving: Calculate the break-even point (Q), for a firm whose: (a) total fixed cost (TFC) = $100,000, product price (P) = $10.00, and average variable cost (AVC) = $7.50. (b) TFC = $600,000, P = $15,000, and AVC = $12,000."

Answer 1

a. $40,000

b. $200

Explanation:

The computation of break-even point is shown below:-

Break-even Point (Q) = TFC ÷ (Price - AVC)

Now we will put the values into the above formula.

a. Break even point = $100,000 ÷ ($10 - $7.5)

= $100,000 ÷ 2.5

= $40,000

b. Break even point = $600,000 ÷ ($15,000 - $12,000)

= $600,000 ÷ $3,000

= $200

Therefore for computing the break even point we simply applied the above formula.