A firm’s total fixed cost is Rs 60. Its short run marginal cost (SMC) schedule is given below:
| Output (units) | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| SMC (Rs) | 20 | 15 | 18 | 27 |
Consider the following statements:
(A) The total variable cost of 3 units is Rs 53.
(B) The total cost of 4 units is Rs 140.
(C) Among these levels, AVC is the lowest at 2 units of output.
(D) The SAC of 4 units is Rs 20.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (C) only
Adding SMCs gives TVC; adding TFC (Rs 60) gives TC.
\( \displaystyle TVC: 20, \ 20 + 15 = 35, \ 35 + 18 = 53, \ 53 + 27 = 80 \)
\( \displaystyle TC: 80, \ 95, \ 113, \ 140 \)
\( \displaystyle AVC = \frac{TVC}{q}: \ 20, \ 17.5, \ 17.67, \ 20 \)
(A) The total variable cost of 3 units is Rs 53. — Correct. TVC of 3 units = 20 + 15 + 18 = 53.
(B) The total cost of 4 units is Rs 140. — Correct. TC of 4 units = 80 + 60 = 140.
(C) Among these levels, AVC is the lowest at 2 units of output. — Correct. AVC is 17.5 at 2 units, the lowest of the four.
(D) The SAC of 4 units is Rs 20. — Incorrect. SAC of 4 units = 140/4 = Rs 35. Rs 20 is the AVC at 4 units, which leaves out the fixed cost.
NCERT (2026-27): “3.7.1 Short Run Costs … Just like the case of marginal product, marginal cost also is undefined at zero level of output. It is important to note here that in the short run, fixed cost cannot be changed. When we change the level of output, whatever change occurs to total cost is entirely due to the change in total variable cost. So in the short run, marginal cost is the increase in TVC due to 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.” “3.7.1 Short Run Costs We have previously discussed the short run and the long run. In the short run, some of the factors of production cannot be varied, and therefore, remain fixed. The cost that a firm incurs to employ these fixed inputs is called the total fixed cost (TFC). 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 (TVC). Adding the fixed and the variable costs, we get the total cost (TC) of a firm TC = TVC + TFC” |