In the short run, a competitive firm has a total fixed cost of Rs 100. The market price is Rs 15. At an output of 20 units, where price equals SMC, its AVC is Rs 18. Consider the following statements:
(A) The firm should produce 20 units, as its loss there is smaller than at zero output.
(B) The firm’s total variable cost at 20 units is Rs 360.
(C) The firm’s total revenue at 20 units is Rs 300.
(D) The firm’s profit at zero output is zero.
(E) The firm’s profit at 20 units is −Rs 160.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (B), (C) and (E) only
Given:
TFC = Rs 100
Price = Rs 15
Output = 20 units
AVC at 20 units = Rs 18
(A) The firm should produce 20 units, as its loss there is smaller than at zero output. — Incorrect. Price is below AVC. The loss at 20 units is Rs 160, but at zero output only Rs 100, so the firm produces nothing.
(B) The firm’s total variable cost at 20 units is Rs 360. — Correct. TVC = AVC × quantity = 18 × 20 = Rs 360.
(C) The firm’s total revenue at 20 units is Rs 300. — Correct. TR = price × quantity = 15 × 20 = Rs 300.
(D) The firm’s profit at zero output is zero. — Incorrect. The fixed cost is still paid, so profit = −TFC = −Rs 100.
(E) The firm’s profit at 20 units is −Rs 160. — Correct. Profit = TR − (TVC + TFC) = 300 − (360 + 100) = −Rs 160.
NCERT (2026-27): “Case 1: Price must be greater than or equal to AVC in the short run … Similarly, the firm’s total variable cost at q1 is as follows
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