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Direction.
Directions: Answer the questions based on the following information:
ABC Ltd. Produces widgets for which the demand is unlimited and they can sell all of their production. The graph below describes the monthly variable costs incurred by the company as a function of the quantity produced. In addition, operating the plant for one shift results in a fixed monthly cost of Rs. 800. Fixed monthly costs for second shift operation are estimated at Rs. 1200. Each shift operation provides capacity for producing 30 widgets per month.
Note: Average unit cost, AC = Total monthly cost / monthly production, and Marginal cost, MC is the rate of change in total cost for unit change in quantity produced.
Assume that the unit price is Rs. 150 and profit is defined as the excess of sales revenue over total costs. What is the monthly production level of ABC Ltd. at which the profit is highest?
30
50
60
40
Correct Answer :
A. 30
We know that Profit = Price × quantity (Q) T.C = 150Q T.C
Now we will check each of the options and find out which one is giving us maximum value.
From Option (A) Q = 30, T.C = 800 + 2500 = 3300. So Profit = 1200
From Option (B) Q = 50, T.C = 2000 + 5000 = 7000. Profit = 7500 7000 = 500
From Option (C) Q = 60, Sales = 150 × 60 = 9000, TC = 2000 + 6500 = 8500. Profit = 500
From Option (D) Q = 40 Sales = 150 × 40 = 6000 TC = 2000 + 3500 = 5500 Profit = 500.
We can make out that Option (a) gives us the maximum profit