Question

Q.1 A producer faces a fixed cost of Rs. 50 and a variable cost

Rs. 5 per unit of output when he produces less than 200 units of

output.

• Assuming that total cost function is linear, determine the

equation of the total cost of function.

• What is the break-even level of output if the price of output is

Rs. 10 per unit. Also draw the relevant graphs.

• Determine the producer’s net revenue if output is 12 units and

the price of output is Rs. 5, Rs. 10 and Rs. 15 respectively.

Answer 1

TC=FC+VC

FC=Rs50+5Q

$BEP=FC/Contribution Margin$

=50/(10-5)

50/5

=10

TR=P.Q

i) TR=Rs5*12= Rs 60

ii) TR=Rs10*12=Rs120

iii) TR=Rs15*12=Rs180