Break-even quantity, break-even point, and profit or loss (AO2, AO4)

Combining the cost and revenues diagrams from the previous section allows us to identify the break-even point, as shown in the diagram above.

• Recall that costs and revenues are shown on the *y-*axis. The unit of measurement is a given currency, such as pounds sterling (£), euros (€), or dollars ($).
• The sales quantity is shown along the *x-*axis, with a suitable unit of measurement (depending on the product in question).
• The total fixed costs (TFC) line starts on the y-axis at the value of the fixed costs (£200 in the above diagram). It is shown as a horizontal line because the fixed costs do not change when the quantity of sales increases.
• The break-even point (BEP) is where the firm's total revenue (TR) line intersects its total costs (TC) line, i.e., the point where TR = TC.
• The break-even quantity (BEQ) is shown on the *x-*axis, as this shows the sales volume (or quantity of sales) necessary for the firm to break-even (i.e., 250 oysters in the above case).
• The break-even revenue is shown on the yaxis, representing the value of the output needed to break-even. If the firm sells 250 oysters (the BEQ), the break-even revenue is £312.50 (i.e. £1.25 × 250).
• The firm's total cost (TC) at the BEQ is £312.50. This is determined by adding the total fixed cost (TFC) and total variable costs (TVC) at the break-even level of output. In our previous example, the firm's unit variable cost was £0.45. Hence, the total cost at the BEQ is £200 + (£0.45 × 250) = £312.50. Clearly, this must be the same value as the firm's break-even revenue.
• The break-even chart above also shows that when the firm sells less than the BEQ (250 oysters in this case), it makes a loss. When it sells more than the BEQ, the business earns a profit.