CAT 2007 — DILR Question 8
Answer the following question based on the information given below.
The following table shows the break-up of actual costs incurred by a company in last five years (year 2002 to year 2006) to produce a particular product.
The production capacity of the company is 2000 units. The selling price for the year 2006 was Rs. 125 per unit. Some costs change almost in direct proportion to the change in volume of production, while others do not follow any obvious pattern of change with respect to the volume of production and hence are considered fixed. Using the information provided for the year 2006 as the basis for projecting the figures for the year 2007, answer the following questions.
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If the company reduces the price by 5%, it can produce and sell as many units as it desires. How many units the company should produce to maximize its profit?
Answer & solution
- A
1400
- B
1600
- C
1800
- D
1900
2000
The new reduced price = 0.95 × 125 = 118.75
Profit = 118.75x – 100x – 9600 = 18.75x – 9600
Profit will be maximum when 18.75x is maximum. As the maximum production capacity is 2000 units, profit is maximum when 2000 units are produced.
Hence, option (e).