A typical break-even analysis assumes that:
A) the total revenue curve is a straight line.
B) the demand curve faced by the firm is horizontal.
C) the average variable cost is the same at different levels of output.
D) profits will grow continually beyond the break-even point.
E) All of these are assumptions of a typical break-even analysis.

Question

Quizplus · Accepted Answer

A typical break-even analysis assumes that the total revenue curve is a straight line, indicating a constant price per unit sold; the demand curve is horizontal, suggesting that all units can be sold at this price; the average variable cost remains constant at different levels of output, implying that the cost per unit does not change with the level of production; and beyond the break-even point, profits will grow continually as fixed costs have been covered and each additional unit sold contributes directly to profit. These assumptions simplify the analysis and help in understanding the financial dynamics of a business operation.

A Typical Break-Even Analysis Assumes That