Discussion
Consider the following statements about breakeven:
1. It is the output at which revenue equals total cost.
2. A higher fixed cost raises the breakeven output.
3. A higher selling price raises the breakeven output.
Which of the statements given above is or are correct?
Answer: A
Correct answer: 1 and 2 only
Statements 1 and 2 are right. Statement 3 is the wrong way round: a higher selling price increases the contribution per tonne, so fewer tonnes are needed to cover the fixed costs and breakeven falls.
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