7. A firm reaches a break-even point (normal profit position) where:
A. marginal revenue cuts the horizontal axis.
B. marginal cost intersects the average variable cost curve.
C. total revenue equals total variable cost.
D. total revenue and total cost are equal.

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BlackTom AI · Accepted Answer

Question restatement: A firm reaches a break-even point (normal profit position) where:
A. marginal revenue cuts the horizontal axis.
B. marginal cost intersects the average variable cost curve.
C. total revenue equals total variable cost.
D. total revenue and total cost are equal.

Option A analysis: 'marginal revenue cuts the horizontal axis.' This would imply MR = 0, which corresponds to no additional revenue from selling another unit, not specifically the break-even point. Break-even is determined by TR = TC, not by MR hitting zero. Hence this statement does not identify break-even.

Option B analysis: 'marginal cost intersects the average variable cost curve.' The point where MC intersects AVC is the minimum of the AVC curve, which relates to cost structure and shutdown decisions in the short run, not to break-even where total revenue covers total costs. Therefore this is incorrect for break-even.

Option C analysis: 'total revenue equals total variable cost.' If TR = TVC, the firm covers only its variable costs but not its fixed costs, resulting in a loss equal to fixed costs. Break-even requires covering both fixed and variable costs, so this condition does not describe break-even.

Option D analysis: 'total revenue and total cost are equal.' When TR = TC, the firm earns normal profit (zero economic profit) and is at the break-even point. This condition properly captures the break-even position, since total revenue exactly covers total costs (both fixed and variable).

Summary perspective: The break-even point is characterized by TR = TC, not by TR = TVC, not by MC meeting AVC, and not by MR = 0. The only condition that aligns with covering all costs and achieving normal profit is option D, where total revenue equals total cost.

ECNM1116.32924.202530 Microeconomics Final; Spring 2025, 100 Multiple Choice Questions

7. A firm reaches a break-even point (normal profit position) where: A. marginal revenue cuts the horizontal axis. B. marginal cost intersects the average variable cost curve. C. total revenue equals total variable cost. D. total revenue and total cost are equal.

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