CAT 1998 — DILR Question 32
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.
How many units should be manufactured such that the profit was at least Rs. 50?
Answer & solution
20
- B
34
- C
45
- D
30
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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It can be seen that at 20 units there is a profit of Rs. 50. Below this the profit will reduce. Hence, to ensure that the profit is at least Rs. 50, then 20 units have to be manufactured.