What is a 'Break-Even Analysis'

A break-even analysis is an analysis to determine the point at which revenue received

equals the costs associated with receiving the revenue. Break-even analysis calculates
what is known as a margin of safety, the amount that revenues exceed the break-even
point. This is the amount that revenues can fall while still staying above the break-even
point.

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Breakeven Price
Breakeven Point - BEP
Last In, First Out - LIFO
4.
Fixed Cost
5.

BREAKING DOWN 'Break-Even Analysis'

Break-even analysis is a supply-side analysis; that is, it only analyzes the costs of the
sales. It does not analyze how demand may be affected at different price levels.
For example, if it costs $50 to produce a widget, and there are fixed costs of $1,000, the
break-even point for selling the widgets would be:
If selling for $100: 20 Widgets (Calculated as 1000/(100-50)=20)
If selling for $200: 7 Widgets (Calculated as 1000/(200-50)=6.7)
In this example, if someone sells the product for a higher price, the break-even point will
come faster. What the analysis does not show is that it may be easier to sell 20 widgets
at $100 each than 7 widgets at $200 each. A demand-side analysis would give the seller
that information

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Empiricism
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This article is about the field of philosophy. For the album by Borknagar, see
Empiricism (album).

John Locke, a leading philosopher of British empiricism

Empiricism is a theory that states that knowledge comes only or primarily from sensory
experience.[1] One of several views of epistemology, the study of human knowledge, along
with rationalism and skepticism, empiricism emphasizes the role of experience and evidence,
especially sensory experience, in the formation of ideas, over the notion of innate ideas or
traditions;[2] empiricists may argue however that traditions (or customs) arise due to relations
of previous sense experiences.[3]
Empiricism in the philosophy of science emphasizes evidence, especially as discovered in
experiments. It is a fundamental part of the scientific method that all hypotheses and theories
must be tested against observations of the natural world rather than resting solely on a priori
reasoning, intuition, or revelation.
Empiricism, often used by natural scientists, says that "knowledge is based on experience"
and that "knowledge is tentative and probabilistic, subject to continued revision and
falsification."[4] One of the epistemological tenets is that sensory experience creates
knowledge. The scientific method, including experiments and validated measurement tools,
guides empirical research.

Regression analysis
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In statistical modeling, regression analysis is a statistical process for estimating the

relationships among variables. It includes many techniques for modeling and analyzing
several variables, when the focus is on the relationship between a dependent variable and one
or more independent variables (or 'predictors'). More specifically, regression analysis helps
one understand how the typical value of the dependent variable (or 'criterion variable')
changes when any one of the independent variables is varied, while the other independent
variables are held fixed. Most commonly, regression analysis estimates the conditional
expectation of the dependent variable given the independent variables that is, the average
value of the dependent variable when the independent variables are fixed. Less commonly,
the focus is on a quantile, or other location parameter of the conditional distribution of the
dependent variable given the independent variables. In all cases, the estimation target is a
function of the independent variables called the regression function. In regression analysis,
it is also of interest to characterize the variation of the dependent variable around the
regression function which can be described by a probability distribution. A related but distinct
approach is Necessary Condition Analysis (NCA), which estimates the maximum (rather than
average) value of the dependent variable for a given value of the independent variable
(ceiling line rather than central line) in order to identify what value of the independent
variable is necessary but not sufficient for a given value of the dependent variable.
Regression analysis is widely used for prediction and forecasting, where its use has
substantial overlap with the field of machine learning. Regression analysis is also used to
understand which among the independent variables are related to the dependent variable, and
to explore the forms of these relationships. In restricted circumstances, regression analysis
can be used to infer causal relationships between the independent and dependent variables.
However this can lead to illusions or false relationships, so caution is advisable;[1] for
example, correlation does not imply causation.
Many techniques for carrying out regression analysis have been developed. Familiar methods
such as linear regression and ordinary least squares regression are parametric, in that the
regression function is defined in terms of a finite number of unknown parameters that are
estimated from the data. Nonparametric regression refers to techniques that allow the
regression function to lie in a specified set of functions, which may be infinite-dimensional.
The performance of regression analysis methods in practice depends on the form of the data
generating process, and how it relates to the regression approach being used. Since the true
form of the data-generating process is generally not known, regression analysis often depends
to some extent on making assumptions about this process. These assumptions are sometimes
testable if a sufficient quantity of data is available. Regression models for prediction are often
useful even when the assumptions are moderately violated, although they may not perform
optimally. However, in many applications, especially with small effects or questions of
causality based on observational data, regression methods can give misleading results.[2][3]
In a narrower sense, regression may refer specifically to the estimation of continuous
response variables, as opposed to the discrete response variables used in classification.[4] The
case of a continuous output variable may be more specifically referred to as metric
regression to distinguish it from related problems

Game theory is "the study of mathematical models of conflict and cooperation between
intelligent rational decision-makers."[1] Game theory is mainly used in economics, political
science, and psychology, as well as logic, computer science, biology and poker.[2] Originally,
it addressed zero-sum games, in which one person's gains result in losses for the other
participants. Today, game theory applies to a wide range of behavioral relations, and is now
an umbrella term for the science of logical decision making in humans, animals, and
computers.
Modern game theory began with the idea regarding the existence of mixed-strategy equilibria
in two-person zero-sum games and its proof by John von Neumann. Von Neumann's original
proof used Brouwer fixed-point theorem on continuous mappings into compact convex sets,
which became a standard method in game theory and mathematical economics. His paper was
followed by the 1944 book Theory of Games and Economic Behavior, co-written with Oskar
Morgenstern, which considered cooperative games of several players. The second edition of
this book provided an axiomatic theory of expected utility, which allowed mathematical
statisticians and economists to treat decision-making under uncertainty.
This theory was developed extensively in the 1950s by many scholars. Game theory was later
explicitly applied to biology in the 1970s, although similar developments go back at least as
far as the 1930s. Game theory has been widely recognized as an important tool in many
fields. With the Nobel Memorial Prize in Economic Sciences going to game theorist Jean
Tirole in 2014, eleven game-theorists have now won the economics Nobel Prize. John
Maynard Smith was awarded the Crafoord Prize for his application of game theory to
biology.

What is 'Hedonic Pricing'

Hedonic pricing is a model identifying price factors according to the premise
that price is determined both by internal characteristics of the good being
sold and external factors affecting it.

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Hedonic Regression
Automated Valuation Model - AVM
3.
Multi-Factor Model
4.
Model Risk
5.

BREAKING DOWN 'Hedonic Pricing'

The most common example of the hedonic pricing method is in the housing
market: the price of a property is determined by the characteristics of the
house (size, appearance, features, condition) as well as the characteristics of
the surrounding neighborhood (accessibility to schools and shopping, level of
water and air pollution, value of other homes, etc.) The hedonic pricing model
is used to estimate the extent to which each factor affects the price.

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Definition of Diamond-Water Paradox

Have you ever purchased something and thought to yourself, 'It's crazy how much I'm
paying for this!'? This might happen more frequently than you would like, based on the
dozens of transactions you may make on a daily basis. Questioning some of your financial
transactions may be best answered or explained through something known as the
diamond-water paradox.
Getting enough water to sustain life typically has a low price, while a piece of diamond
jewelry has a high price. Why does an economy put a much lower value on something vital
to sustaining life compared to something that simply looks shiny and sparkles? This
question is the diamond-water paradox, also known as paradox of value, and it was first
presented by the economist Adam Smith in the 1700s.
In his works, Smith points out that practical things that we use every day often have little or
no value in exchange. Things like cups, utensils, socks, and water are a few examples. On
the other hand, things that often have the greatest value in the market have little or no
practical use. An example may be an old piece of art or 1920s baseball card. Other than
looking at it, there isn't much else we can do with the art or baseball card. So, why are things
valued this way?
Understanding why the paradox exists can be helped by understanding the economic terms
known as marginal utility and scarcity. Scarcity can be simply defined as how readily
available a good, skill, or service is. Is there a lot of it compared to what people are
demanding? Marginal utility is the additional satisfaction or gain someone gets from using
or purchasing an additional unit of a particular good or service. People are willing to pay a
higher price for goods with greater marginal utility.
So, let's go back to water and diamonds. There is plenty of water in most parts of the world
(not scarce), which means that as consumers, we usually have a low marginal utility for
water. In a typical situation, we aren't willing to pay a lot of money for one more drink of

water. Diamonds, however, are scarce. Because they are harder to find and attain, our
marginal utility (additional satisfaction), for adding a diamond to our collection is much
higher than someone offering us one more drink of water. If one is dying of thirst, then this
paradox might not make sense, and the marginal utility from another drink of water would
be much higher than the additional satisfaction of owning a diamond. Let's look at a few
examples.

Examples
Does paying $300-$400 dollars for an Xbox compared to $50 for a solid pair of shoes make
sense? From a practical and survival standpoint, it certainly doesn't. In order to get around
and enable our most basic form of transportation (walking), we need shoes to protect our
feet. They are certainly more important and practical than an Xbox. The price difference
comes back to the satisfaction, or marginal utility, we get from purchasing a pair of shoes
compared to an Xbox. If you were in the middle of the jungle and trying to survive, you
might pay more for those shoes, but until that happens, most of us will continue to pay
more for our electronics!
Van Gogh, Picasso, and Monet paintings have sold for well over $50 million dollars! You can
pick up a frying pan you can use every day to cook your food for less than $20 dollars.
Marginal utility and scarcity can explain this crazy difference in value again, with a special
emphasis on the scarcity of the products. There are millions of frying pans for sale. There
may only be a few dozen original paintings from famous artists. The satisfaction someone
gets from knowing he or she owns a rare piece of art is much higher than the satisfaction
from owning another frying pan; therefore the person is willing to pay a much higher