The document discusses break-even analysis, which integrates cost and revenue estimates to determine profits and losses at different output levels. It explains that break-even occurs at the output level where total costs equal total revenue. The document provides an example where fixed costs are Rs. 100+10 per unit, revenue is Rs. 15 per unit, and break-even output is 20 units. It states that production above 20 units yields profits while below 20 units results in losses.

1. •Explains the output, cost, and revenue
relationships over the whole range of stipulated
output.
Break-Even Analysis- P
Analysis- R
Break-Even Analysis-
Profit maximization

2. • Gives a preview of profit prospects to
the business manager.
 integrates the cost and revenue
estimates to ascertain the profits and
losses associated with different levels
of output.
 Explains about the volume of output
at which the costs and revenues are
exactly equal.

3.  Given
 Cost function: TC=100+10Q
 Revenue function: TR=15Q
 Break-Even output: 15Q=100+10Q
 5Q=100
 Q=20

4.  Production beyond 20 units will yield
increasing profits.
 Production below 20 units means the firm
incurs loss.
 Production of 20 units is just break-even ie
TR=TC

5. TR
TC
TVC
TFC
C
O
S
T
&
R
E
V
E
N
U
E
20 OUTPUT
Operating
loss
Operating
profit

6.  Relevant to short run
 Costs are affected only by level of output.
 Efficiency of factors is assumed to be
constant.
 The sales volume and the produced output
are the same .
 . That means what ever is produced is sold.

7.  Break-Even point = Total Fixed
 costs/variable profit per unit=
 = Total Fixed costs/Selling price-
Variable cost per unit

8.  Given Variable cost per unit =Rs 6
 Firm’s selling price per unit =Rs10
 Firm’s Total Fixed costs = Rs1,60,000
 Break –Even output =1,60000/10-6
 =1, 60,000/4
 = 40,000 units

9.  Break-Even output : TR=TC
 Firm’s total revenue : 40,000 x10 =4,00,000
 Firm’s total costs : TFC+TVC
 TFC =1,60,000
 TVC(Total output x variable cost per unit )=
 40000 x Rs 6=2,40000
 TC =1,60,000+2,40,000 =4,00,000
 Therefore it is proved :TR=TC Hence the
above formula for Break-Even point is
proved.

10. TC
TR
a
b
Q
Q1
Q2
O

11.  The Fig represents short run.
 The horizontal straight line is total fixed
costs as they do not change according to the
changes in the level of output.
 Total revenue curve starts from the origin
indicating that at the beginning even with
no output the fixed costs are to be born.
 At output OQ level, point “a” shows TC=TR ,
a break-even output where the losses are
minimized.

12.  At point “b” again TC=TR, showing the level
of output where the amount of profits are
maximized.
 Beyond OQ2, it is the zone of losses where
TC is > TR.
 At output OQ1,the profit is at it’s highest.
 The profit zone is from OQ to OQ2.

13.  What is the optimum level of output that a
firm should go for ?and why?
 Is it judicious for the firm to stop production
at OQ level of output? Justify your answer.
 If at all the firm stops it’s production at OQ1
level of output what implications can you
analyze?
 At what level of output sales maximization is
achieved?

15. 

200
260
300
320
340
370
420
453
500
720
0
20
40
60
80
100
120
140
150
160
180
80

16.  What is the average fixed cost of the firm at
40 units level of output?
 If the selling price is Rs 4, derive the break-
even level of output.
 At what level of output does the firm earn
maximum profits?
 What is firm’s variable cost at 60 units of
output?

17. THANK YOU