CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production
A firm has total cost TC = 500 + 20Q, where Q is output. At Q = 50, which statement is correct?
Total cost at 50 units is 500 plus 1,000, which is 1,500, so average cost is ₹30. Marginal cost is the slope of the cost function, a constant ₹20. Average cost is above marginal cost, so it is falling.
- AAverage cost is ₹30 and marginal cost is ₹20Correct
- BAverage cost is ₹20 and marginal cost is ₹30
- CAverage cost is ₹30 and marginal cost is ₹30
- DAverage cost is ₹10 and marginal cost is ₹20
Explanation
TC at 50 = 500 + 1,000 = 1,500, so AC = 1,500/50 = ₹30. MC = d(TC)/dQ = ₹20. AC exceeds MC because fixed cost per unit is still being spread, so AC is falling.
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