Beruflich Dokumente
Kultur Dokumente
• Study of
interrelationships $’s TC
among a firm’s sales,
costs, and operating TR
profit at various levels
of output
• Break-even point is
the Q where TR = TC Profit
Q
(Q1 to Q2 on graph) Q1 Q2
Linear Break-Even Analysis
• Over small enough range of output levels TR and
TC may be linear, assuming
– Constant selling price (MR)
– Constant marginal cost (MC)
– Firm produces only one product
– No time lags between investment and resulting
revenue stream
Graphic Solution Method
• Profit contribution = P – VC
– The amount per unit of sale contributed to
fixed costs and profit
• Target volume = (FC + Profit)/(P – VC)
– Output at which a targeted total profit would
be achieved
Example 1 – how many Christmas trees
need to be sold
• Bowsaw
– Fixed cost is $5.00
– Variable cost is $0.40 per
• Chainsaw
• Fixed cost is $305
• Variable cost is $0.10 per tree
• Solution
Q(break-even) = ($305 - $5)/($0.40 - $0.10)
= 300/.30 = 1,000 trees
Revenue and Cost as
Function of a Single Input
• Marginal Revenue Product
– Increase in revenue per unit increase in one
input
– = MR / (Xt+1 – X t )
• Marginal Factor Cost
– Increase in cost per unit increase in one input
– =MC / (Xt+1 – X t )
• Go to Spreadsheet
Example 3: Optimal planting density
• Variable
Fixed costs
costs
perper
acre:
100 seedlings
– Seedlings
Land . . . . .. .. .. . $300
$5
– Planting
Site prep ........ 20 100
– Annual
Total . .. .. .. . 2560
– Set-up . . . . . 5
– Total . . . . 465
TC = 465 + 25 x (# trees per A/100)
Go to Spreadsheet