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Ghosh Babu has a manufacturing unit. The following graph gives the cost for the various number of units. Given: Profit = Revenue - Variable cost - Fixed cost. The fixed cost remains constant up to 34 units after which additional investment is to be done in fixed assets. In any case, production cannot exceed 50 units.
Note: The fixed cost for upto 34 units is 50 and the the fixed cost for more is 100.
The revenue from 50 units is 1000 and the variable cost from 50 units is 700
If the production cannot exceed 45 units, then what is the number of units that can maximise profit per unit?
Till 34 units, the fixed cost is constant and the revenue increasing per every unit made.
So, to calculate the number of units that need to be produced to maximize the profit, we have to check only at two points: 34 units and 45 units.
The revenue of 50 units is 1000. So, the revenue per unit is 20.
The variable cost of 50 units is 700. So, the variable cost per unit is 14.
If number of units produced is 34,
Fixed cost is 50
Variable cost is 14*34 = 476
Revenue is 20*34 = 680.
So, profit is 680-476-50 = 154
If number of units produced is 45,
Fixed cost is 100
Variable cost is 14*45 = 630
Revenue is 20*45 = 900.
So, profit is 900-630-100 = 170
So, the profit per unit is maximized when the number of units produced is 34
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