A firm’s short run total cost is TC = 100 + 5q, where q is output.
A. TFC is Rs 100 and SMC is Rs 5 at every level of output.
B. At 20 units of output, AFC is equal to AVC.
C. AVC is equal to SMC at every level of output.
D. SAC rises once output goes beyond 20 units.
E. TVC at 30 units of output is Rs 250.
How many of the above statements are correct?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Three
In TC = 100 + 5q, the part that does not change with output is TFC = 100, and TVC = 5q. So AFC = 100/q, AVC = 5 and SAC = 5 + 100/q.
A. TFC is Rs 100 and SMC is Rs 5 at every level of output. — Correct. Each extra unit adds Rs 5 to TVC.
B. At 20 units of output, AFC is equal to AVC. — Correct. AFC = 100/20 = 5, and AVC = 5.
C. AVC is equal to SMC at every level of output. — Correct. Both are Rs 5 at every output.
D. SAC rises once output goes beyond 20 units. — Incorrect. SAC = 5 + 100/q. AVC stays at 5 while AFC keeps falling, so SAC falls at every output; it has no minimum here.
E. TVC at 30 units of output is Rs 250. — Incorrect. TVC = 5 × 30 = Rs 150. Rs 250 is the total cost.
NCERT (2026-27): “3.7.1 Short Run Costs Previously, we have discussed that in order to increase the production of output the firm needs to employ more of the variable inputs. This results in an increase in total variable cost, and hence, an increase in total cost. Therefore, as output increases, total variable cost and total cost increase. Total fixed cost, however, is independent of the amount of output produced and remains constant for all levels of production.” “In Table 3.3, we get the AFC-column by dividing the values of the second column by the corresponding values of the first column. Similarly, we get the AVC-column by dividing the values of the third column by the corresponding values of the first column. At zero level of output, both AFC and AVC are undefined. For the first unit of output, AFC is Rs 20 and AVC is Rs 10. Adding them, we get the SAC equal to Rs 30. …” |