The point of minimum average cost at which the supply curve cuts the long run average cost (LRAC) curve is called ------------------ of a firm.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Break-Even point.
A firm stays in business only if it earns at least normal profit, the minimum needed to keep it in business. Where the price just equals average cost, total revenue just covers total cost, normal profit included: the firm breaks even. On the supply curve this happens at the point of minimum average cost, where the supply curve cuts the LRAC curve, and that point is the break-even point of the firm.
Why the other options are incorrect
Option (1) Profit Maximization point. — Incorrect. A firm chooses the output at which price equals marginal cost, and every point on its supply curve is such a profit-maximising point. The point of minimum average cost is one of them, so profit maximisation does not set it apart; what sets it apart is that the profit made there is only normal profit.
Option (2) Shut-Down point. — Incorrect. A firm making a loss has to decide whether to go on producing at all. In the short run it must pay its fixed costs anyway, so it keeps producing as long as the price covers its average variable cost; the point of minimum average variable cost, below which it stops producing, is its short-run shut-down point.
Option (4) Abnormal profit point. — Incorrect. Abnormal (supernormal) profit is any profit above normal profit. It needs a price above average cost, at a point higher up the supply curve. At minimum average cost the price only just covers average cost, so there is no abnormal profit.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 11-05 S2 | 30-05 S2* | – | – | – |
* A similar question.
NCERT (2025-26): “4.4.4 The Normal Profit and Break-even Point … The minimum level of profit that is needed to keep a firm in the existing business is defined as normal profit. A firm that does not make normal profits is not going to continue in business. Normal profits are therefore a part of the firm’s total costs. It may be useful to think of them as an opportunity cost for entrepreneurship. Profit that a firm earns over and above the normal profit is called the super-normal profit. In the long run, a firm does not produce if it earns anything less than the normal profit. In the short run, however, it may produce even if the profit is less than this level. The point on the supply curve at which a firm earns only normal profit is called the break-even point of the firm. The point of minimum average cost at which the supply curve cuts the LRAC curve (in short run, SAC curve) is therefore the break-even point of a firm.…” |