Question

In case of break-even point, a firm covers:

• A. variable cost only
• B. fixed cost only
• C. both fixed costs and variable costs
• D. none of the above

Answer 1

The correct option is C both fixed costs and variable costs

At break-even point, a firm makes normal profits. At this point, total revenue and total cost are equal. Total costs include both fixed costs and variable costs.Profits are said to be normal when TR=TC or AR=AC. Normal profits are defined as the minimum return that the producer expects from his capital invested in the business. Normal profits are a part of total cost.