Setting up a new business is usually risky. Market research can provide the entrepreneur with a rough estimate of demand. However, the true strength of demand will only be known once the business starts trading. Consequently there is always a danger that the new venture might not generate the revenues needed to cover costs. This explains why in the early years of a new firm’s life many entrepreneurs are content to avoid losses. Their business objective is to survive, and to do this they must break even.
Breakeven is the output level where total cost equals total revenue. At breakeven, total profit is zero. The business is not making a profit, nor is it making a loss. The formula used to calculate the breakeven output level is:
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