Which graph shows a firm's costs, revenues, and profits at various levels of output?

Which graph shows a firm's costs, revenues, and profits at various levels of output?

• A. Break-even chart
• B. Profit and loss statement
• C. Cash flow forecast
• D. Budget

Answer: (A)

The main idea here is graphing how costs and revenues change as output varies, so you can see profitability at different levels. A break-even chart does exactly that: it plots total cost and total revenue on the same graph with output on the horizontal axis, so you can see the point where they equal each other (break-even) and, above or below that point, how much profit or loss the firm would make. The gap between the revenue line and the cost line represents profit, and it grows or shrinks as output changes, making it a clear visual tool for analyzing profitability at different output levels. By contrast, a profit and loss statement is a financial record of revenues and expenses over a period, not a graph showing how profit varies with output. A cash flow forecast tracks cash inflows and outflows over time, not the relationship between costs, revenues, and output. A budget is a plan of expected income and expenditures, again not specifically a graph of costs, revenues, and profits across varying output.

The main idea here is graphing how costs and revenues change as output varies, so you can see profitability at different levels. A break-even chart does exactly that: it plots total cost and total revenue on the same graph with output on the horizontal axis, so you can see the point where they equal each other (break-even) and, above or below that point, how much profit or loss the firm would make. The gap between the revenue line and the cost line represents profit, and it grows or shrinks as output changes, making it a clear visual tool for analyzing profitability at different output levels.

By contrast, a profit and loss statement is a financial record of revenues and expenses over a period, not a graph showing how profit varies with output. A cash flow forecast tracks cash inflows and outflows over time, not the relationship between costs, revenues, and output. A budget is a plan of expected income and expenditures, again not specifically a graph of costs, revenues, and profits across varying output.