A company produces a commodity with Rs 24000 fixed costs. The variabl

1.	A company produces a commodity with Rs 24000 fixed costs. The variable cost is estimated to be 25% of the total revenue recovered on selling the product at a rate of Rs 8 per unit. Find the following:(i) Cost function (ii) Revenue function (iii) Break-even point.
Answer» Suppose that x number of unit are produced and sold. (i) As each unit’s variable cost is 25% of revenue The variable cost of x units = 25 % of Rs 8 x = Rs 2x Total cost of producing x units C(x) = TFC + TVC = Rs (24000 + 2x) (ii) Price of one unit = Rs 8 Total revenue on selling x units = R(x) = Rs 8x (iii) At break even values C(x) = R(x) ⇒ 24000 + 2x = 8x ⇒ 24000 = 6x ⇒ x = 4000

A company produces a commodity with Rs 24000 fixed costs. The variable cost is estimated to be 25% of the total revenue recovered on selling the product at a rate of Rs 8 per unit. Find the following:(i) Cost function (ii) Revenue function (iii) Break-even point.

Answer»

Suppose that x number of unit are produced and sold.

(i) As each unit’s variable cost is 25% of revenue

The variable cost of x units = 25 % of Rs 8 x = Rs 2x

Total cost of producing x units C(x) = TFC + TVC = Rs (24000 + 2x) (ii) Price of one unit = Rs 8

Total revenue on selling x units = R(x) = Rs 8x

(iii) At break even values

C(x) = R(x)

⇒ 24000 + 2x = 8x

⇒ 24000 = 6x

⇒ x = 4000