Answer to Question #296160 in Microeconomics for Harshita

Question

As a firm believer in the idea of sustainability, you were able to discover a cheap and efficient technology of recycling plastic bottles and single use bags into various products. To make this technology a profitable business opportunity, your firm collaborates with Adhuna Ltd. which is in the production of plastic helmets for construction purposes and plastic durables for households. Given this product range, your firm has the following two production opportunities:

● In the first case your estimated annual revenue is Rs. 2,50,000, and the production will cost you Rs. 80,000.

● In your second option, you expect to sell 2000 helmets every year at Rs. 100 each, and the average total cost of every helmet will be Rs.20.

a. Which production opportunity will you choose and why?

b. If you do so, what will be your economic profit?

Answer 1

A) I would choose opportunity A. This is because the total profit (TR-TC) of A is higher compared to that of B.

B) $Economic Profit=(Total Profit Of ChoosenVenture-Total Opportunity Cost)$ $= (250000-80000)-((2000×100)-(2000×20))$

$=10,000$