Answer:
Break-even Point Break-even for a firm occurs when it is able to cover all its costs of production. Accordingly, break-even point is defined as a situation where TR=TC or TR/Q=TC/Q or AR=AC. Under this situation, the firm earns only normal profits. Output (units) Diagram Showing Break-even Point Break-even is said to occur, when, TR=TC \[\Rightarrow \] \[\frac{TR}{Q}=\frac{TC}{Q}\Rightarrow P=AC\] In the diagram given above, break-even is struck at point 0 where AR (Price) = AC. A firm is just covering its costs as price (OP) happens to be equal to AC (QL). Here, TC=Total Cost; TR=Total Revenue P=Price; Q=Quantity AC=Average Cost; AR=Average Revenue MR=Marginal Revenue Shut Down Point It occurs when a firm is just covering its variable costs or it is a situation when, Output (units) Diagram Showing Shut Down Point TR=TVC or \[\frac{TR}{Q}=\frac{TVC}{Q}\] or AR=AVC Here, the firm is incurring loss of Fixed Cost only. In the diagram given above, shut down is struck at point 0 where AR (Price) = AVC. A firm is operating a price just covering its AVC. ' Thus, Price=AVC When AR=AVC. Its total loss is equal to Total Fixed Cost (TFC) for a given level of output. Here, TR=Total Revenue TVC=Total Variable Cost Q=Quantity AVC=Average Variable Cost AR=Average Revenue MR=Marginal Revenue
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