Rutgers Microeconomics Practice Test 2026 – Complete Exam Prep

The break-even price for a price-taking firm is the level at which total revenue equals total cost. At this price, the firm earns zero economic profit; it is neither making a profit nor incurring a loss. This concept is crucial for understanding how firms operate in a competitive market.

When a firm operates at the break-even price, it covers all of its fixed and variable costs, allowing it to sustain its operations in the long term. If the price falls below this level, the firm would start to incur losses and may eventually exit the market if it cannot cover its costs.

Understanding how this price functions helps clarify competitive behavior in the market, as firms will strive to reach at least this threshold to remain operational. Although one might think of the break-even point as related to zero profit, the focus is more on covering costs comprehensively rather than achieving profit levels. Thus, while having some connection to a firm earning zero profit, the notion of break-even is more about total revenue equalling total costs, a core principle in microeconomic theory.