Question

What should the firm's profit, when average variable cost is $Rs.20$ per unit, average fixed cost is $Rs.10$ per unit, price of the output is $Rs.25$ per unit and only $8$ units of the output are produced?

Answer 1

$AVC=Rs.20;AFC=Rs.10;Price=Rs.25$ and $Output=8units$
$TVC=AVC\times Output=Rs.20\times 8=Rs,160$
$TFC=AFC\times Output=Rs.10\times Rs.8=Rs.80$
$TC=TFC\times TVC=Rs.80+Rs.160=Rs.240$
$TR=Price\times Output=Rs.25\times 8=Rs.200$
$Profit=TR-TC=Rs.200-Rs.240=(-)=Rs.40$
In this case, firm is incurring loss of $Rs.40$ because $TC>TR$.
Profit $=(-)Rs.40\left(loss\right)$.