Homework Answers
Ans:
Total revenue = output * price
Total cost = Fixed cost + Variable cost
Profit/Loss = Total revenue - Total cost
| Output | Price | Total Revenue | Fixed Cost | Variable Cost | Contribution | Total cost | Profit/Loss |
| 0 | 100 | 0 | 100 | 0 | 0 | 100 | 0 |
| 1 | 90 | 90 | 100 | 50 | 40 | 150 | -60 |
| 2 | 80 | 160 | 100 | 90 | 70 | 190 | -30 |
| 3 | 70 | 210 | 100 | 150 | 60 | 250 | -40 |
| 4 | 60 | 240 | 100 | 230 | 10 | 330 | -90 |
| 5 | 50 | 250 | 100 | 330 | -80 | 430 | -180 |
| 6 | 40 | 240 | 100 | 450 | -260 | 550 | -310 |
| 7 | 30 | 210 | 100 | 590 | -380 | 690 | -480 |
b) It is important for the firm to recover at least variable cost incurred in the short run. when the output is 2 units, firm is able to recover the variable cost and the contribution is higher.Hence the recommended quantity of output is 2 units.
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