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Pierre believes that his break-even output may be too high. With reference to the case study, what would be the best approaches for him to use in order to reduce his break-even output? Justify your view. (16 marks)

The break-even output is the number of units at which a firm ‘breaks even’, where total revenue is just enough to cover total costs, meaning that no profit or loss is made.
One way to reduce his break-even output is to increase the price as increasing the price will increase the profit margin and if the same amount is sold the total revenue will increase which will lead to an increase in profits meaning that his break-even output will reduce. When Pierre was deciding what price to sell his t-shirts, figure 1, he rejected the option of a higher selling price, £12, because it would mean that the expected sales would be 25% less than at £9.20. However it would probably be possible for Pierre to raise his selling price and still keep the same sales, somewhere between £9.20 and £12, although he will have to be careful that an increase in price doesn’t decrease the quantity demanded.
Another way in which Pierre could reduce his break-even output is to decrease his costs either fixed costs, rent, or variable costs, t-shirts. Reducing the variable costs would mean that the total variable costs would be lower which would lead to a decrease in total cost meaning that profit will reduce and therefore the break-even output will be lower. Pierre’s variable costs are the cost of the t-shirts, which is currently £3.29, and labour, power and printing costs which is 50p meaning that his variable cost per t-shirt is £3.79. He could reduce this by buying a cheaper t-shirt like the one he rejected, in figure 1, although this is lower quality and could reduce demand, this would lead to a decrease his variable costs per t-shirt by £1. He could also reduce his variable...

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