Warning: this entry will be boring, viewer discretion is advised.

(1) In economics, we have learned that as long as a firm is functioning at a level which earns enough revenue to cover its variable costs, it should be kept running, as this is much better than not earning revenue at all, and still having to pay off the fixed cost.

(2) In one of the accounting classes, though, we learned that on graphs, fixed costs is the interception on the y-axis of the graph, where as variable costs is reflected in the rising line to the right.

If we merge the principles of (1) and (2), we will find that the following graph (made my me) manifests both relationships and should be one of the golden rules for companies:

I name the red line as the Minimum Revenue for Continuing Operations line; any firm should have an revenue at least like this to continue operations, as suggested by (1) and (2).

This doesn’t seem like rocket science; however, of I were not enrolled in a B.Comm program, how would I have thought of having firms keep operating even if it’s costing more to run it than the revenue can cover?

Kinda cool, isn’t it?