Find the profit maximising output level from the following data.
| Quantity | 7 | 8 | 9 | 10 |
| Price | 10 | 9 | 8 | 7 |
| Average Total Cost | 6 | 5 | 6 | 7 |
Answer & explanation
Correct answer: option 3
The correct answer is option 3: 8
| Quantity | 7 | 8 | 9 | 10 |
| Price | 10 | 9 | 8 | 7 |
| Average Total Cost | 6 | 5 | 6 | 7 |
| TR (P*Q) | 70 | 72 | 72 | 70 |
| TC (ATC*Q) | 42 | 40 | 54 | 70 |
| Profit (TR-TC) | 28 | 32 | 18 | 0 |
To find the profit-maximising output level, we calculate profit at each quantity by subtracting total cost (calculated as average total cost multiplied by quantity) from total revenue (price multiplied by quantity). At a quantity of 7, the profit is ₹28; at 8 units, it rises to ₹32; at 9 units, it drops to ₹18; and at 10 units, it becomes zero. Since the highest profit of ₹32 is achieved when 8 units are produced, the profit-maximising output level is 8 units.