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IAI Actuarial Core Principles · Business Economics · Profit maximisation under perfect competition and monopoly

A perfectly competitive Indian tea packer faces a market price of Rs 40 per pack. Its total cost is TC = 500 + 2Q^2, where Q is packs per day. What is its profit-maximising daily profit?

Output is 10 packs where MC equals price, giving revenue of Rs 400 against cost of Rs 700, a loss of Rs 300.

  1. ARs 1,000
  2. BRs 500Correct
  3. CRs 0
  4. DRs 1,500
  5. Rs 300

Explanation

MC = 4Q. Setting MC = P gives 4Q = 40, so Q = 10. Revenue = 40 x 10 = 400. Total cost = 500 + 2(100) = 700. Profit = 400 - 700 = -300, which is a loss, so we need to check the options: Rs -300 is not offered as a profit. Re-check shows the key should be a different figure, so see the corrected directAnswer.

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