The break-even point is where the total revenue equals the total cost. In other words, it is where profit equals zero. This point can be illustrated using a break-even chart.

The relationship between the total revenue and total costs for a firm is illustrated below.

At the output level Q1, the total revenue equals the total costs, therefore, the firm will break-even. If the company produced at Q2, then the distance between Q2 and Q1 would be termed the margin of safety.

The break-even position will change according to changes in either the total costs or the total revenue.