For a hypothetical firm, the total cost of producing 5 units of a commodity is Rs. 310 and that of producing 8 units is Rs. 850. If the firm has to spend Rs. 50 even when there is no output, what will be the marginal cost of producing the 8th unit?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 180
Given data:
-
Total cost of 5 units (TC₁) = ₹310
-
Total cost of 8 units (TC₂) = ₹850
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Fixed cost (FC) = ₹50
We need to find the marginal cost of the 8th unit.
Step 1: Find total variable cost (TVC)
TVC = TC – FC
So,
For 5 units: TVC₁ = 310 – 50 = 260
For 8 units: TVC₂ = 850 – 50 = 800
Step 2: Find change in variable cost for extra units
Change in TVC = 800 – 260 = 540
Change in output = 8 – 5 = 3 units
Step 3: Find marginal cost (MC)
MC = Change in TVC / Change in output
MC = 540 / 3 = 180