What is break-even?

• A. The level of output where total revenue exceeds total costs.
• B. The level of output where total revenue equals total cost.
• C. The level of output where fixed costs are fully paid.
• D. The level of output where profits are maximized.

Answer: (B)

Break-even is the point at which total revenue exactly covers total costs, so there is no profit and no loss. This happens because you have fixed costs that stay the same regardless of output and variable costs that rise with output, and total revenue is price times quantity. At break-even, revenue equals fixed plus variable costs, which means the contribution from each unit just enough to cover those fixed costs.

You can think of it as the level of output where the money coming in from sales matches what you spend on running the business. If you sell more than that, you start making a profit; if you sell less, you incur a loss. The exact quantity can be found by fixed costs divided by (price minus variable cost per unit).