CA Foundation · Business Economics · Theory of Production and Cost
A firm's total cost at 10 units of output is ₹1,500 and at 11 units is ₹1,560. Its total fixed cost is ₹500. What is the marginal cost of the 11th unit and the average variable cost at 10 units?
Marginal cost is the change in total cost from one extra unit, 1,560 minus 1,500, which is ₹60. Average variable cost is total variable cost of 1,000 (1,500 minus fixed 500) divided by 10 units, giving ₹100.
- AMC = ₹60; AVC = ₹100Correct
- BMC = ₹60; AVC = ₹150
- CMC = ₹156; AVC = ₹100
- DMC = ₹50; AVC = ₹100
Explanation
MC = TC11 - TC10 = 1,560 - 1,500 = ₹60. TVC at 10 units = 1,500 - 500 = ₹1,000, so AVC = 1,000/10 = ₹100. Option with AVC 150 uses AVC = TC/Q, which is actually average total cost, not AVC.
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