Read the passage given below and answer the question.
A furniture workshop works in a rented shed with a fixed set of machines. In the short run it cannot change the shed or the machines, but it hires carpenters by the day. Its weekly total cost (TC) of making tables is given below.
| Tables made in a week | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
|---|---|---|---|---|---|---|---|
| TC (Rs) | 120 | 200 | 260 | 300 | 350 | 420 | 510 |
What are the workshop’s total fixed cost and the short run marginal cost of the 4th table?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → TFC = Rs 120; SMC = Rs 50
At zero output there is no variable cost, so the cost then is all fixed cost: TFC = Rs 120.
SMC is the rise in total cost from one more unit:
\( SMC_4 = 350 - 300 = 50 \)
Option (2) TFC = Rs 120; SMC = Rs 57.50 — Rs 57.50 is the AVC at 4 tables (230 / 4).
Option (3) TFC = Rs 0; SMC = Rs 87.50 — Rs 87.50 is the SAC at 4 tables (350 / 4).
NCERT (2026-27): “3.7.1 Short Run Costs … In Table 3.3, we have an example of cost function of a typical firm. The first column shows different levels of output. For all levels of output, the total fixed cost is Rs 20. Total variable cost increases as output increases. With output zero, TVC is zero. For 1 unit of output, TVC is Rs 10; for 2 units of output, TVC is Rs 18 and so on. In the fourth column, we obtain the total cost (TC) as the sum of the corresponding values in second column (TFC) and third column (TVC). At zero level of output, TC is just the fixed cost, and hence, equal to Rs 20.” “3.7.1 Short Run Costs … The short run marginal cost (SMC) is defined as the change in total cost per unit of change in output …” |