Question

You are the production head and you decide to introduce a new product in your production line. Market survey reveals that price of identical products in market is Rs. 40/unit and you decide to adopt that price. Cost survey shows that firm has to invest Rs. 620 as fixed cost to introduce the new product and variable cost are as follows; Output VC 0 00 100 280 200 480 300 640 400 820 500 1040 600 1300 700 1620 800 2020 900 2620 1000 3420

Answer 1

the following table shows the profits generated by each output quantity, assuming selling price is Rs40. Since marginal costs of production are lower than selling price, the more you sell, the higher your profit. Profit is maximized at 1,000 units = Rs35,960

Step-by-step explanation:

output variable costs fixed costs total revenue profits

0 00 620 0 (620)

100 280 620 4,000 3,100

200 480 620 8,000 6,900

300 640 620 12,000 10,740

400 820 620 16,000 14,560

500 1,040 620 20,000 18,340

600 1,300 620 24,000 22,080

700 1,620 620 28,000 25,760

800 2,020 620 32,000 29,360

900 2,620 620 36,000 32,760

1000 3,420 620 40,000 35,960