CAT 1998 — DILR Question 31
Direction: Answer the questions based on the following information.
Ghosh Babu has a manufacturing unit. The following graph gives the cost for various number of units. Given: Profit = Revenue – Variable cost – Fixed cost. The fixed cost remains constant up to 34 units after which additional investment is to be done in fixed assets. In any case, production cannot exceed 50 units.
What is the minimum number of units that need to be produced to make sure that there was no loss?
Answer & solution
- A
5
10
- C
20
- D
Indeterminate
Profit = Revenue – Variable Cost – Fixed Cost = Revenue – (Variable Cost + Fixed Cost). If we consider (Fixed Cost + Variable cost) as total cost, then as long as the revenue is higher than the total cost, there is a profit. In case the revenue is less than the total cost there would be a loss. If we are to compile the data given in the question it would be as follows:
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Thus, we can say that at a production of 12 units, there is a profit of Rs. 2. Above 12 units there is always a profit and below 12 units there is loss. Hence, to make sure there is no loss, one has to manufacture a minimum of 12 units.
* The answer is clearly not indeterminable, it should be 12 units, but among the options given the one closest to it is 10 units