Read the passage carefully and answer the questions based on the passage:

Short run Costs

In the short run, some of the factors of production cannot be varied. The cost that a firm incurs to employ fixed inputs is called the total fixed cost. Whatever amount of output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the firm, in the short run, can adjust only variable inputs. Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost. Adding the fixed and the variable costs, we get the total cost of a firm. In order to increase the production of output, the firm must employ more of the variable inputs. As a result, the total variable cost and total cost will increase. Therefore, as output increases, the total variable cost and total cost increase. Marginal cost is the increase in total variable cost due to an increase in production of one extra unit of output. For any level of output, the sum of marginal costs up to that level gives us the total variable cost at that level.

The total cost is equal to Rs.95 for 7 units of output and Rs.115 for 8 units of output. What is the marginal cost at the quantity of 8th unit?

Rs.20

The correct answer is Option (3) → Rs.20

The marginal cost at the quantity of the 8th unit is calculated as the difference in total cost between 8 units and 7 units.

Given:

• Total cost for 7 units of output = Rs. 95

• Total cost for 8 units of output = Rs. 115

Marginal Cost at 8th unit = Total Cost for 8 units - Total Cost for 7 units

Marginal Cost at 8th unit = Rs. 115 - Rs. 95

Marginal Cost at 8th unit = Rs. 20