Managerial Economics

Breakeven Analysis

A scan of Figure 2.1 shows that the ice cream bar venture could result in an economic profit or loss depending on the volume of business. As the sales volume increases, revenue and cost increase and profit becomes progressively less negative, turns positive, and then becomes increasingly positive. There is a zone of lower volume levels where economic costs exceed revenues and a zone on the higher volume levels where revenues exceed economic costs.

One important consideration for our three students is whether they are confident that the sales volume will be high enough to fall in the range of positive economic profits. The volume level that separates the range with economic loss from the range with economic profit is called ...