Cost Curve - Break Even Point
What is the Break Even Point on the Cost Curve?
Written by Jason Gordon
Updated at March 16th, 2023
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What is the Break Even Point on the Cost Curve?
Again, the perfectly competitive firm will choose the level of output where Price = MR = MC.
At this price and output level, where the marginal cost curve is crossing the average cost curve, the price the firm receives is exactly equal to its average cost of production. We call this the break even point.
The calculations are:
profit = (total revenue – total cost)
Or:
profit = (price – average cost) × quantity
If the market price that perfectly competitive firm receives leads it to produce at a quantity where the price is greater than average cost, the firm will earn profits. If the price the firm receives causes it to produce at a quantity where price equals average cost, which occurs at the minimum point of the AC curve, then the firm earns zero profits. Finally, if the price the firm receives leads it to produce at a quantity where the price is less than average cost, the firm will earn losses.