Break-even point
Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
The break-even point is the point on a firm's supply curve where the firm earns only normal profit, that is, zero economic profit. It lies at the minimum of average cost. In the short run it is where the supply curve cuts the short-run average cost (SAC) curve. In the long run it is at minimum long-run average cost (LRAC). Above this price the firm earns super-normal profit. Below it, the firm makes a loss.
Example
Suppose a sugar mill's minimum SAC is ₹30 per kg. If the market price is exactly ₹30, the mill covers all its costs, including normal profit, and earns no extra profit.
Don't confuse with
- Shut-down point: in the short run this is at minimum AVC, below the break-even point. Between the two points the firm produces at a loss because it still covers its variable cost. In the long run both points are at minimum LRAC.
Related concepts
- Supply
- Supply schedule
- Supply curve
- Short run supply curve of a firm
- Long run supply curve of a firm
- Shutdown point