Question

Based on the table below, what was the profit of the firm?

Quantity
Total Fixed Cost		$234,000
Total Variable Cost
Total Cost
Average Fixed Cost
Average Variable Cost		$62
Average Total Cost		$98
Marginal Cost		$177
Price		$155
Marginal Revenue		$79
Total Profit (loss)

Answer 1

Let the total quantity of production by the firm be 'N'.

Now, Total profit (TP) = Total revenue (TR) - Total cost (TC) …..Equation A

Total Cost = Average total cost * Total quantity of production = 98 N ………..equation 1.

We have, Total variable cost = Average variable cost * Total quantity of production = 62 N …....equation 2 (given Average variable cost = $ 62)

Also, Total cost = Total fixed cost + Total variable cost = 234000 + 62 N …… equation3 (using equation 2, given total fixed cost is $ 234,000)

Now, solving for equation 1 & 3, we have:

98N = 234000 + 62N, which gives N = 6500

Thus, we have Total cost = 98*6500 = $ 637,000 (using equation 1)

Total variable cost = 62*6500 = $ 403,000 (Using equation 2)

Also, Average fixed cost = Total fixed cost / Total quantity of production = 234,000 / N = 234,000 / 6500 = $ 36

Total revenue = (price per unit of production)*total quantity of production = 155*6500 = $ 1,007,500

Now, Total profit = Total revenue - Total cost = 1,007,500 - 637,000 = $ 370,500