Break-even point (BEP) refers to the output level where
A Total cost is maximum
B Total revenue is maximum
C Total revenue equals total cost
D Marginal revenue equals zero
Break-even occurs when TR = TC, meaning the firm earns neither profit nor loss at that output.
At break-even point, the firm earns
A Supernormal profit
B Normal profit
C Maximum profit
D Loss
At BEP, TR just covers TC including implicit costs, so the firm earns normal profit.
Break-even analysis is mainly used to study
A Consumer choice
B Producer profit–loss position
C Inflation trends
D National income
It helps determine the output/sales level needed to avoid loss and begin earning profit.
If TR is greater than TC, the firm is in
A Loss
B Break-even
C Profit
D Shutdown
TR > TC means the firm’s receipts exceed costs, generating economic profit.
If TR is less than TC, the firm experiences
A Normal profit
B Loss
C Maximum profit
D Zero MR
TR < TC indicates costs exceed revenue, so the firm incurs loss.
Contribution margin in break-even analysis refers to
A TR – TC
B Price – Variable cost per unit
C Fixed cost ÷ Output
D MR – MC
Contribution per unit = Selling price − Variable cost per unit; it contributes towards covering fixed cost and profit.
Break-even output (in units) is typically calculated as
A Fixed cost ÷ Contribution per unit
B Variable cost ÷ Fixed cost
C Total cost ÷ Price
D Total revenue ÷ Fixed cost
BEP units = TFC / (P − AVC). It shows minimum units needed to cover fixed costs.
If fixed cost is ₹10,000 and contribution per unit is ₹50, BEP output equals
A 50 units
B 100 units
C 200 units
D 500 units
BEP = 10,000/50 = 200 units. This output makes TR equal to TC.
Margin of safety refers to
A Difference between profit and cost
B Difference between actual sales and break-even sales
C Difference between AR and MR
D Difference between fixed and variable costs
Margin of safety indicates how much sales can fall before the firm reaches break-even and begins to incur losses.
A higher margin of safety implies
A Higher risk of loss
B Lower risk of loss
C Zero profit
D Higher fixed costs necessarily
Greater margin of safety means sales are well above BEP, so risk of loss from sales decline is lower.
Break-even chart typically shows relationship between
A Demand and supply
B Cost, revenue and output
C Utility and price
D Income and consumption
The chart plots TC and TR against output to find their intersection (BEP).
In a break-even chart, the BEP is shown at the intersection of
A MC and MR
B AC and AR
C TC and TR
D TFC and TVC
Break-even is where TC curve meets TR line, meaning no profit and no loss.
If selling price rises with costs unchanged, the break-even output
A Increases
B Decreases
C Remains unchanged
D Becomes infinite
Higher price raises contribution per unit, so fewer units are needed to cover fixed costs.
If variable cost per unit increases (price constant), BEP output
A Falls
B Rises
C Becomes zero
D Remains unchanged
Higher variable cost reduces contribution per unit, so more units must be sold to cover fixed costs.
If fixed cost increases (other things constant), BEP output
A Falls
B Remains unchanged
C Rises
D Becomes negative
Higher fixed cost requires higher total contribution, raising the break-even level.
A firm can produce in the short run even with losses if
A Price < AVC
B Price ≥ AVC
C Price < AFC
D MR is negative
If price covers AVC, the firm can meet variable costs and part of fixed costs, so continuing may be rational.
The shutdown point in the short run occurs when
A Price = AC
B Price = AVC
C Price = AFC
D Price = MC
If price falls below AVC, the firm cannot cover variable costs and should shut down.
Profit maximization condition for a firm is
A TR is maximum
B MR = MC
C AR = AC always
D TC is minimum
A firm maximizes profit where marginal revenue equals marginal cost, with stability condition MC cuts MR from below.
If MR > MC, a profit-maximizing firm should
A Decrease output
B Increase output
C Stop production
D Reduce price only
MR > MC means producing more adds more revenue than cost, increasing profit.
If MC > MR, the firm should
A Increase output
B Decrease output
C Maintain output
D Increase advertising only
MC > MR implies the last unit adds more to cost than revenue; reducing output raises profit.
When MR = MC but MC cuts MR from above, equilibrium is
A Stable profit maximum
B Unstable
C Guaranteed profit
D Break-even
For stable equilibrium, MC must cut MR from below; cutting from above violates the second-order condition.
In perfect competition, MR is equal to
A MC
B AR
C AC
D AVC
Competitive firm faces given price, so AR = MR = Price.
In monopoly, MR is generally
A Greater than AR
B Equal to AR
C Less than AR
D Always zero
A monopolist lowers price to sell more, reducing revenue from previous units, so MR < AR.
If a monopolist’s MR becomes zero, TR is
A Maximum
B Minimum
C Negative
D Constant at all outputs
TR is maximum where MR = 0; beyond this, MR becomes negative and TR falls.
If price is ₹40 and output is 25 units, TR is
A ₹1000
B ₹65
C ₹1600
D ₹400
TR = P×Q = 40×25 = 1000. This is total sales revenue.
If TR is ₹900 at 30 units and ₹960 at 31 units, MR equals
A ₹30
B ₹60
C ₹90
D ₹960
MR = ΔTR/ΔQ = (960−900)/1 = ₹60, the revenue gained from the extra unit.
If TC is ₹1200 at 20 units and ₹1270 at 21 units, MC equals
A ₹70
B ₹60
C ₹1270
D ₹1200
MC = ΔTC/ΔQ = (1270−1200)/1 = ₹70. It is the additional cost for one more unit.
A firm maximizes profit at 21 units if at that output
A MR = ₹60 and MC = ₹70
B MR = ₹70 and MC = ₹70
C MR = ₹80 and MC = ₹60
D TR = TC
Profit maximization requires MR = MC. Equality at ₹70 indicates optimal output if stability holds.
If AR exceeds AC at a given output, the firm earns
A Loss
B Normal profit
C Supernormal profit
D Shutdown loss
AR > AC means price is above per-unit cost, so the firm earns more than normal profit.
If AR equals AC at a given output, the firm earns
A Maximum profit
B Normal profit
C Loss
D Negative profit
AR = AC implies TR = TC, so economic profit is normal profit (zero abnormal profit).
If AR is less than AC, the firm earns
A Supernormal profit
B Normal profit
C Loss
D Zero MR
When AC exceeds AR, costs per unit are higher than price, leading to losses.
Under perfect competition, TR curve is
A Horizontal line
B Straight line from origin
C Inverted U-shaped
D Vertical line
With constant price, TR increases proportionally with output, forming a straight line through origin.
Under monopoly, TR curve is usually
A Straight line
B Vertical line
C Inverted U-shaped
D Always decreasing
TR rises initially, reaches a maximum, then falls as price cuts dominate at higher output.
A firm’s average revenue curve is identical to
A Supply curve
B Demand curve
C Cost curve
D Production curve
AR represents price at each quantity sold, which is the demand curve faced by the firm.
In imperfect competition, MR falls faster than AR because
A Costs rise faster
B Firm sells at increasing prices
C Price must be reduced for extra sales, affecting previous units
D Demand becomes horizontal
Lower price applies to all units sold, reducing earlier revenue and making MR smaller than AR.
Break-even sales (in value terms) equals
A Fixed cost ÷ P
B Fixed cost ÷ Contribution margin ratio
C Variable cost ÷ Fixed cost
D MR ÷ MC
BEP (sales) = TFC / (Contribution margin ratio), where ratio = (P−AVC)/P.
If contribution margin ratio is 0.25 and fixed cost is ₹20,000, BEP sales equals
A ₹5,000
B ₹20,000
C ₹50,000
D ₹80,000
BEP sales = 20,000 / 0.25 = ₹80,000. That sales value covers fixed cost exactly.
If fixed cost is zero, break-even output is
A Zero
B Infinite
C Always negative
D Cannot be defined
With no fixed cost, any positive contribution yields profit; BEP occurs at zero output (TR = TC = 0).
The most direct use of break-even analysis is in
A Determining consumer surplus
B Setting sales targets
C Measuring GDP
D Finding elasticity
Firms use BEP to set minimum sales/output targets to avoid losses.
A fall in fixed cost (other things constant) will
A Increase BEP
B Decrease BEP
C Not affect BEP
D Make MR negative
Lower fixed cost requires less contribution to cover it, so break-even level decreases.
A rise in selling price (variable cost constant) will
A Reduce contribution
B Increase contribution
C Reduce profit always
D Raise BEP always
Higher price raises contribution per unit, lowering BEP and increasing profitability.
A rise in variable cost (price constant) will
A Increase contribution
B Reduce contribution
C Not affect BEP
D Reduce fixed cost
Higher variable cost reduces contribution margin, pushing BEP upward.
The profit at any output can be expressed as
A TR + TC
B TR – TC
C TC – TR
D AR – MR
Profit = Total Revenue minus Total Cost. Positive value shows profit; negative shows loss.
If a firm’s TR is ₹1,50,000 and TC is ₹1,20,000, profit equals
A ₹30,000
B ₹2,70,000
C ₹1,20,000
D ₹1,50,000
Profit = TR − TC = 1,50,000 − 1,20,000 = ₹30,000, indicating surplus over cost.
When price equals marginal cost, it indicates
A Monopoly equilibrium always
B Perfect competition allocative efficiency
C Break-even output always
D Shutdown condition
In perfect competition, price tends to equal MC at equilibrium, implying allocative efficiency.
In monopoly equilibrium, price is typically
A Equal to MC
B Less than MC
C Greater than MC
D Equal to AVC
A monopolist sets output where MR=MC and charges price from demand curve, usually above MC.
If a firm’s BEP is 500 units and it sells 650 units, margin of safety is
A 150 units
B 500 units
C 650 units
D 1150 units
Margin of safety = Actual sales − BEP sales = 650 − 500 = 150 units, indicating safety buffer.
The term “contribution” is central to break-even because it first covers
A Variable cost
B Fixed cost
C Profit only
D Taxes only
Contribution (P−AVC) is used to recover fixed costs first; remaining amount becomes profit.
A firm is at profit-making level when output is
A Below BEP
B Equal to BEP
C Above BEP
D Always at BEP
Above break-even, TR exceeds TC and the firm earns positive profit.
Break-even analysis is most meaningful when
A Costs and prices are fairly stable
B Demand is perfectly elastic always
C Technology changes daily
D Output cannot be measured
BEP works best under stable cost–price conditions because it assumes fixed cost, variable cost per unit, and selling price remain predictable.