CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production
A firm's total cost at an output of 10 units is Rs 1,000 and at 11 units is Rs 1,060. Its total fixed cost is Rs 400. What is the average variable cost at 10 units?
Average variable cost is Rs 60. Subtract fixed cost Rs 400 from total cost Rs 1,000 to get variable cost Rs 600, then divide by 10 units. Rs 100 would be average total cost, which includes fixed cost.
- ARs 40
- BRs 60Correct
- CRs 100
- DRs 106
Explanation
Total variable cost at 10 units = 1,000 - 400 = Rs 600. AVC = 600 / 10 = Rs 60. Rs 100 is average total cost (1,000/10), which wrongly includes fixed cost, and Rs 60 also happens to equal the marginal cost of the 11th unit (1,060 - 1,000), but the question asks for AVC.
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