Question

What should the firms profit , when average variable cost is RS 20 per unit . AFC is Rs 10 , price of output is Rs 25 per unit and only 8 units of output are produced ,

Answer 1

Dear Student, the solution to your query is here.

$$\begin{gathered} \mathrm{TVC}=\mathrm{AVC}\times \mathrm{Output} \\ =20\times 8=\mathrm{Rs}160 \end{gathered}$$

$$\begin{gathered} \mathrm{TFC}=\mathrm{AFC}\times \mathrm{Output} \\ =10\times 8=\mathrm{Rs}80 \end{gathered}$$

$$\begin{gathered} \mathrm{TC}=\mathrm{Price}\times \mathrm{Output} \\ =\mathrm{TFC}+\mathrm{TVC} \\ =80+160 \\ =\mathrm{Rs}240 \end{gathered}$$

$$\begin{gathered} \mathrm{TR}=\mathrm{Output}\times \mathrm{No}.\mathrm{of}\mathrm{Units} \\ =25\times 8 \\ =\mathrm{Rs}200 \end{gathered}$$

$$\begin{gathered} \mathrm{Profit}=\mathrm{TR}-\mathrm{TC} \\ =200-\left(240\right) \\ =-\mathrm{Rs}40 \end{gathered}$$

In this case, firm is incurring loss of Rs 40 because TC >TR