TutorOn by Sanath Withanage

Question:

[Table Data] Output 1: TC=250, MC=50. Output 2: TC=295, MC=45. Output 3: TC=330, MC=35. Output 4: TC=375, MC=45. Output 5: TC=425, MC=50. What is the average fixed cost for producing 5 units of output?
(1) Rs. 300
(2) Rs. 200
(3) Rs. 150
(4) Rs. 60
(5) Rs. 40

Correct Answer:

(5)

Answer Explanation:

First, we must find Total Fixed Cost (TFC). We know Total Cost at 1 unit ($TC_1$) is 250, and the Marginal Cost of the 1st unit ($MC_1$) is 50. Since $TVC_1 = MC_1$, TVC is 50. Therefore, $TFC = TC – TVC = 250 – 50 = 200$. TFC is constant at all output levels. At 5 units, Average Fixed Cost (AFC) = $TFC / 5 = 200 / 5 = 40$.

Topic: Costs of Production Year: 2024