CMA Foundation · Fundamentals of Business Economics and Management · Means of Production
A firm's total revenue is ₹12,00,000. It pays wages ₹4,00,000, rent ₹1,50,000 and interest ₹1,00,000 on borrowed capital. Treating the entrepreneur's reward as the residual, what is the entrepreneur's profit?
The entrepreneur's profit is ₹5,50,000. Profit is the residual after paying wages, rent and interest, which total ₹6,50,000. Subtracting this from revenue of ₹12,00,000 leaves ₹5,50,000 as the reward of enterprise.
- A₹5,50,000Correct
- B₹6,50,000
- C₹4,00,000
- D₹7,50,000
Explanation
Contractual payments to other factors total 4,00,000 + 1,50,000 + 1,00,000 = ₹6,50,000. Residual = 12,00,000 − 6,50,000 = ₹5,50,000. The ₹6,50,000 option is the total of the payments, not the residual.
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