Question

If the firm can sell its output for $1 per unit, Fc is $50, VC cost is $60, and the firm produces 230 units then firm's total profit is:

1. $110

2. $120

3. $230

4.None of the above

Answer 1

Total profit is the difference between total cost and total revenue. Total cost consists of sum of fixed cost and variable cost. Fixed cost is the cost on fixed factors of production such as land and building, cost on machinery, salary of permanent labours and insurance etc. The variable cost is the cost on variable factors such as raw materials, wages of casual labours, fuel, transportation etc.

Total revenue is the total receipts from the sale of the entire output.

Profit is the difference between total revenue and total cost.

Profit =Total Revenue- Total cost.

Here the firms total revenue is 230× $1=$230

Total cost =$FC $50+ VC$60=$110.

Then total profit =$ 230-$110=$120

Answer: 2. $120