Describe Break Even Price

Question

Describe Break Even Price in Economics for a purely competitive firm?

Answer 1

Break Even Price (PBE): The “break even price” for purely competitive firm is the minimum price at which the firm can function and not lose money. Any prices lesser than this is a price at which, even when the firm functions in the best possible manner, it will still create economic losses. The price more than this is one at which the firm can create a positive economic gain as long as it makes excellent decisions. The break even price is at minimum, point on the average total cost (or ATC) curve, or PBE = minimum ATC. Note that at the break even price the firm might be making “normal gains” or the payment to entrepreneur. Economists count “normal gains” as part of the net costs of production as they compensate to the entrepreneur to cover the opportunity costs of risk, time and effort place into the business.