IAI Actuarial Core Principles · Business Economics · Profit maximisation under perfect competition and monopoly
An Indian insurer's claims-processing unit has fixed costs of ₹60,000 per month and a constant variable cost of ₹20 per claim. At 2,000 claims in a month, what is the average total cost per claim, and what is the marginal cost?
Average total cost is ₹50 and marginal cost is ₹20. Total cost is ₹60,000 plus ₹40,000 variable, or ₹1,00,000, which over 2,000 claims gives ₹50. Each extra claim adds only the constant variable cost of ₹20.
- AATC ₹50; MC ₹20Correct
- BATC ₹50; MC ₹50
- CATC ₹30; MC ₹20
- DATC ₹20; MC ₹20
- ATC ₹70; MC ₹20
Explanation
Total cost = 60,000 + 20 × 2,000 = ₹1,00,000. ATC = 1,00,000 / 2,000 = ₹50. MC is the variable cost per extra claim, ₹20. Option C gives AFC of ₹30 as if it were ATC, which is wrong.
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