Break-even analysis primarily examines the relationship between price and cost to determine the production level at which profits begin. Which statement is true?

• A. Profit is maximized at break-even.
• B. Break-even occurs when price equals cost.
• C. Break-even occurs when revenue equals total cost.
• D. Break-even occurs when fixed costs are zero.

Answer: (C)

Break-even analysis focuses on when revenue covers all costs, so profit is zero at that point. In simple terms, total revenue equals total costs. If you sell Q units at price P, revenue is P × Q. If total cost is fixed costs plus variable costs (FC + VC × Q), break-even occurs where P × Q = FC + VC × Q. This can be rearranged to Q = FC / (P − VC), showing that you break even only when the price per unit covers the variable cost per unit and enough of the fixed costs is covered by the remaining contribution.

That’s why the statement that break-even occurs when revenue equals total cost is the correct one: it directly corresponds to the defining condition of having zero profit. The other ideas don’t fit as neatly: profit is not maximized at break-even since profit is zero there; break-even is not simply price equaling cost in a per-unit sense without considering volume and fixed costs; and fixed costs being zero is not required for break-even to occur.