Naila owns a small pottery factory. She can make 1000 pieces of pottery per year and sell them for Rs 100 each. It costs Naila Rs 20,000 for the raw materials to produce the 1,000 pieces of pottery She has invested Rs100,000 in her factory and equipment: Rs50,000 from her savings and Rs50,000 borrowed at 10 per cent. (Assume that she could have loaned her money out at 10 her per cent, too) Naila can work at a competing pottery factory for Rs40,000 per year. The economics profit at Naila's pottery factory is ?
Correct answer: B. Rs30,000
- A. Rs80,000
- B. Rs30,000
- C. Rs75,000
- D. Rs70,000
Explanation
Revenue is Rs100,000, while explicit costs are Rs20,000 for materials and Rs5,000 interest on the loan. Adding the opportunity costs of her savings, Rs5,000, and forgone wages, Rs40,000, gives total economic profit of Rs30,000.
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