Answer to Question #114912 in Microeconomics for Thr

Question

What are the break-even point and the shutdown point? What is the significance of these points in relation to supplier’s decisions?

Answer 1

Break-even point is the production and sales levels of a given product at which the revenue generated from sales is perfectly equal to production cost.

Shutdown point is the minimum price where companies prefer shutting down their operation instead of continuing to operate.

the significance in supplier's decision is that break-even point is where the marginal cost(MC) equals the average total cost(ATC),supplier will create profit above and losses below this point.Shut-down is the price at which the marginal cost does not even cover the average variable cost(ATC).At this point,the supplier is better off stopping supply than keeping to supply at a loss.