Question

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 1

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