Question

Assuming the prevailing market price to be Rs. 4 per unit. The cost and production data of a hypothetical firm is presented in the following Table.

Show with (a) the total cost approach, and (b) marginal approach the best level of output at which the total profit of the firm would be maximum.

Answer 1

(a) Total Cost Approach

It is obvious from the table that total profit is maximized (at Rs. 147) when the firm produces and sells 150 units of the commodity per time period.

(b) Marginal Approach

The MC of Rs. 4 at 150 units of output was obtained by finding the change in TC per unit increase in output, when output is increased from 140 units to 160 units.