CA Foundation · Business Economics · Theory of Production and Cost
A small unit in Coimbatore has total fixed cost of ₹12,000. At an output of 400 units, its total variable cost is ₹20,000. What is the average total cost per unit at this output?
Average total cost is ₹80 per unit. Total cost is fixed cost of ₹12,000 plus variable cost of ₹20,000, which gives ₹32,000, and dividing by 400 units gives ₹80. Using only variable cost would give ₹50, which ignores fixed cost.
- A₹30
- B₹50
- C₹80Correct
- D₹20
Explanation
Total cost = fixed cost + variable cost = 12,000 + 20,000 = ₹32,000. Average total cost = 32,000 ÷ 400 = ₹80 per unit. Option B is the average variable cost (20,000 ÷ 400) and option A is the average fixed cost (12,000 ÷ 400), so both leave out part of the cost.
Did you get it right without looking?
One question tells you little. A timed set on Theory of Production and Cost shows your real accuracy, how long you take and where you lose marks.
More Theory of Production and Cost questions
- In the short run, a firm's average variable cost (AVC) is ₹40 at 100 units and its marginal cost (MC) at that output is ₹40. Assuming AVC is…
- Which of the following is an example of an internal economy of scale for a manufacturing firm?
- When a firm expands from short run to long run operations, it can adjust all factors of production. How does the long-run average cost curve…
- A textile factory has the following cost structure: Fixed costs = ₹50,000 per month; Variable cost per unit = ₹200. If the factory produces …
- In the short run, a firm experiences increasing returns to labour initially. This occurs because:
- A firm doubles all of its inputs and finds that its output rises by less than double. Which of the following does this situation illustrate?