The break-even point for a business is the point at which income equals expenses.
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The break-even point for a business is the point at which income equals expenses. Since the starting point describes situation before business begins, we do not consider it as a break-point. Suppose we write a system of equations to find the break-even point for a business. Let's also suppose that the system has no solution except the starting point. This could mean two things.
The income is always higher than the expenses. In this case, the business always makes profit, from day one.
The expenses are always higher than the income. In this case, the business always loses money.
Notice that the first situation would occur if the business had no start-up cost. For example, think about a company that produces mouse pads and sells them for $4 each. If each mouse pad costs $2 to be produced, and there is no start-up cost, the business always makes money.
Expenses:& y=2x
Income:& y=4x
In the above system of equations, x represents the number of items and y represents the number of dollars of expense or income. From the graph, we can observe that the two lines never intersect after the starting point. It means that there will be no break-even point.
Now, as an example of the second situation, think about a company that produces smartphone cases and sells them for $2.50 each. Assume that it costs $3 to make the case, and there is no start-up cost. In this situation the business always loses money.
Expenses:& y=3x
Income:& y=2.50x
In the above system of equations, x represents the number of items and y represents the number of dollars of expense or income. From the graph, we can observe that the two lines never intersect after the starting point. It means that the company will never reach a break-even point.
