The table shows the total variable cost (TVC) of a firm under perfect competition in the short run:
| Output (units) | 1 | 2 | 3 | 4 | 5 | 6 |
|---|---|---|---|---|---|---|
| TVC (Rs) | 15 | 27 | 36 | 46 | 58 | 74 |
If the market price is Rs 10, what output will the profit-maximising firm produce in the short run?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Zero output
In the short run a firm produces only if price is at least the minimum AVC. Here the lowest AVC is Rs 11.50, above the price of Rs 10, so the firm produces nothing.
Given:
Market price = Rs 10
TVC for 1 to 6 units = Rs 15, 27, 36, 46, 58, 74
AVC = TVC ÷ output:
AVC for 1 to 6 units = Rs 15, 13.50, 12, 11.50, 11.60, 12.33
MC = change in TVC = Rs 15, 12, 9, 10, 12, 16
Price equals MC at 4 units, and MC is rising there. But at 4 units AVC is Rs 11.50, more than the price. The firm loses Rs 6 over and above its fixed cost.
At zero output it loses only its fixed cost. So 4 units, and every other output, is worse than zero output.
NCERT (2026-27): “Case 1: Price must be greater than or equal to AVC in the short run We will show that the statement of Case 1 (see above) is true by arguing that a profit-maximising firm, in the short run, will not produce at an output level wherein the market price is lower than the AVC.” “4.4.1 Short Run Supply Curve of a Firm … Combining cases 1 and 2, we reach an important conclusion. A firm’s short run supply curve is the rising part of the SMC curve from and above the minimum AVC together with zero output for all prices strictly less than the minimum AVC. …” |