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CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production

A firm's total cost at zero output is Rs 5,000. Its total cost is Rs 9,000 at 10 units and Rs 12,000 at 15 units. What is its marginal cost per unit when output rises from 10 to 15 units?

Marginal cost is Rs 600 per unit. The extra cost of raising output from 10 to 15 units is Rs 12,000 minus Rs 9,000, which is Rs 3,000, spread over 5 additional units. Fixed cost of Rs 5,000 stays constant and does not affect marginal cost.

  1. ARs 200
  2. BRs 600Correct
  3. CRs 800
  4. DRs 1,000

Explanation

Total cost at zero output is fixed cost, so fixed cost is Rs 5,000 and does not alter the change. Marginal cost = (12,000 - 9,000) / (15 - 10) = 3,000 / 5 = Rs 600. Rs 800 is the average variable cost at 15 units... (7,000/15 is not 800), so it is simply a wrong figure; Rs 200 results from dividing 1,000 mistakenly.

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