CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production
A firm in Surat produces 20 units at a total cost of ₹5,000. When it produces 21 units, the total cost becomes ₹5,150. What is the marginal cost of the 21st unit?
The marginal cost of the 21st unit is ₹150. Marginal cost is the addition to total cost from producing one more unit, so ₹5,150 minus ₹5,000 equals ₹150. Dividing total cost by output would give average cost, which is a different concept.
- A₹250
- B₹245
- C₹150Correct
- D₹5,150
Explanation
Marginal cost = change in total cost / change in output = (5,150 − 5,000) / 1 = ₹150. ₹250 is the average cost at 20 units, and ₹245.24 approximates the average cost at 21 units; neither is the extra cost of one unit.
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