A firm sells 10 units of its good at a market price of Rs 20 per unit. Its total fixed cost is Rs 50 and its total variable cost for 10 units is Rs 100. What is its profit?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs 50
Given:
Price, p = Rs 20
Output sold, q = 10
TFC = Rs 50
TVC = Rs 100
Profit is total revenue minus total cost.
\( \displaystyle TR = p \times q = 20 \times 10 = \text{Rs } 200 \)
\( \displaystyle TC = TVC + TFC = 100 + 50 = \text{Rs } 150 \)
\( \displaystyle \text{Profit} = TR - TC = 200 - 150 = \text{Rs } 50 \)
Option (1) Rs 150 — this leaves out the variable cost (200 − 50).
Option (2) Rs 100 — this leaves out the fixed cost (200 − 100).
This question uses Production and Costs and The Theory of the Firm under Perfect Competition together.
NCERT (2026-27): “3.7.1 Short Run Costs We have previously discussed the short run and the long run. In the short run, some of the factors of production cannot be varied, and therefore, remain fixed. The cost that a firm incurs to employ these fixed inputs is called the total fixed cost (TFC). Whatever amount of output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the firm, in the short run, can adjust only variable inputs. Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost (TVC). Adding the fixed and the variable costs, we get the total cost (TC) of a firm TC = TVC + TFC” Introductory Microeconomics - Chapter 4, The Theory of the Firm under Perfect Competition: “4.3 Profit Maximisation A firm produces and sells a certain amount of a good. The firm’s profit, denoted by π 1, is defined to be the difference between its total revenue (TR) and its total cost of production (TC ). …” |