Question

If the firm is operating at a level above break even level, it will __________.

• A. earn net profit on the quantity in excess of break even level quantity at the rate of contribution margin
• B. earn net profit on the total quantity sold at the rate of contribution margin
• C. incur loss on the quantity in short of break even level quantity at the contribution margin
• D. incur loss on the quantity in excess of break even level quantity at the contribution margin

Answer 1

The correct option is A earn net profit on the quantity in excess of break even level quantity at the rate of contribution margin

Break even point refers to the situation where the company only earn normal profit which is included in the cost. At this point, total cost is equal to total revenue and any downward shift of revenue curve from this point will lead to losses for the firm.

Therefore, if the firm is operating above the break even point then they will earn profit on the quantity sold in excess of the break even level of quatity given the price of the commodity.