Break-even Analysis Form
BREAK-EVEN ANALYSIS - 4
Figure 2. Break-even diagram with a non-zero
target profit.
Figure 3
The break-even diagram can also be modified to determine the output required to meet a
non-zero target profit level (Figure 2). Effects on this output due to various changes (as in
Table 2) can also be similarly studied with this diagram.
§ Example 3 . Suppose that product price decreases from P
1
to P
2
. Show on the diagram
how much output would change to maintain the same level of profit target
A
.
Answer: Draw a line parallel to TC through A. This line cuts the TR
2
line at B, drop a
vertical line from B to determine the new output level. [Note: The solution may not be
feasible if we are told that the market size Q
6
is such that Q
6
< Q
A
2
.]
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