CA Foundation · Business Economics · Theory of Production and Cost
A firm's average total cost at 50 units is ₹80 and at 60 units is ₹78. What is the marginal cost of producing the additional 10 units, on average, and what does it imply for the ATC curve?
The average incremental cost is ₹68 per unit, found from total cost of 4,680 minus 4,000 divided by 10 units. Since this is below the ATC of ₹80, the ATC curve is falling.
- A₹60 per unit; ATC is falling because MC is below ATCCorrect
- B₹78 per unit; ATC is at its minimum
- C₹80 per unit; ATC is rising
- D₹60 per unit; ATC is rising because MC is below ATC
Explanation
TC at 50 = 50×80 = 4,000; TC at 60 = 60×78 = 4,680. Extra cost = 680 for 10 units, i.e. ₹68 per unit, which is not listed exactly, so check: 680/10 = 68. Hence the correct option must be recomputed: none lists 68, so the key is flawed.
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