Question:
When a firm is producing zero output, its total costs are Rs. 300. When the firm is producing 5 units of output, its total costs are Rs. 630. What is the Average Variable Cost of producing 5 units of output?
(1) Rs. 60
(2) Rs. 66
(3) Rs. 122
(4) Rs. 126
(5) Rs. 330
Correct Answer:
(2)
Answer Explanation:
Total Fixed Cost (TFC) is the cost when output is zero, which is 300. Total Cost (TC) at 5 units is 630. Total Variable Cost (TVC) = TC – TFC = 630 – 300 = 330. Average Variable Cost (AVC) = TVC / Quantity = 330 / 5 = 66.
Topic: Costs of Production Year: 2018
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