The table shows the total revenue (TR) and total cost (TC) of a firm in a perfectly competitive market:
| Output (units) | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
|---|---|---|---|---|---|---|---|
| TR (Rs) | 0 | 8 | 16 | 24 | 32 | 40 | 48 |
| TC (Rs) | 10 | 14 | 17 | 21 | 27 | 36 | 48 |
What is the market price of the good, and at what output is the firm’s profit maximum?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs 8; 4 units
Given: TR rises by Rs 8 for each extra unit; TC at each output is in the table.
For a price-taking firm, TR = p × q, so the price = TR ÷ q.
Price = 8 ÷ 1 = 16 ÷ 2 = … = 48 ÷ 6 = Rs 8
Profit = TR − TC at each output:
0 units: 0 − 10 = −10
1 unit: 8 − 14 = −6
2 units: 16 − 17 = −1
3 units: 24 − 21 = 3
4 units: 32 − 27 = 5
5 units: 40 − 36 = 4
6 units: 48 − 48 = 0
Profit is highest, Rs 5, at 4 units.
NCERT (2026-27): “4.2 Revenue … Then, total revenue (TR) of the firm is defined as the market price of the good (p) multiplied by the firm’s output (q).” “… The average revenue ( AR ) of a firm is defined as total revenue per unit of output. … In other words, for a price-taking firm, average revenue equals the market price.” “Summary … The profit of a firm is the difference between total revenue earned and total cost incurred.” |