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Pricing Concepts and Management | Chapter 12 339
Figure 12.6 Combining the Marginal Cost and Marginal Revenue Concepts for
Optimal Profi t
Marginal cost
Average cost
Dollars P
Average revenue
(demand)
Marginal revenue
Q
Quantity
From Pride/ Ferrell , Marketing 2014, 17E. 2014 Cengage Learning.
Break-Even Analysis
The point at which the costs of producing a product equal the revenue made from selling the
product is the break-even point . If a paint manufacturer has total costs of $ 100,000 and sells
$ 100,000 worth of paint in the same year, the company has broken even.
Figure 12.7 illustrates the relationships between costs, revenue, profi ts, and losses involved break-even point The point at
in determining the break-even point. Knowing the number of units necessary to break even is which the costs of producing a
important in setting the price because it helps a fi rm to calculate how long it will take to recoup product equal the revenue made
expenses at different price points. For example, if a product priced at $ 100 per unit has an from selling the product
Figure 12.7 Determining the Break-Even Point
Total revenue
Dollars Break-even point Profits Total
cost
Total
variable
costs
Losses Fixed costs
Units
From Pride/ Ferrell , Marketing 2014, 17E. 2014 Cengage Learning.
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