A competitive firm sells 50 units at a market price of Rs 20. Its average cost at this output is Rs 16. What is its profit?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 200
Given:
Price = Rs 20
Output = 50 units
Average cost = Rs 16
Profit = total revenue − total cost.
TR = 20 × 50 = Rs 1,000
TC = 16 × 50 = Rs 800
Profit = 1,000 − 800 = Rs 200
Option (1) Rs 4 — this is the profit on one unit only.
Option (2) Rs 1,000 — this is the TR.
Option (4) Rs 800 — this is the TC.
NCERT (2026-27): “4.3 Profit Maximisation A firm produces and sells a certain amount of a good. The firm’s profit, denoted by π, is defined to be the difference between its total revenue (TR) and its total cost of production (TC ).” “4.3.4 The Profit Maximisation Problem: Graphical Representation … The total revenue of the firm at q0 is the area of rectangle OpAq0 (the product of price and quantity) while the total cost at q0 is the area of rectangle OEBq0 (the product of short run average cost and quantity). So, at q0, the firm earns a profit equal to the area of the rectangle EpAB.” |