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 |
Which of the following is correct for this workshop?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → SMC of the 6th table (Rs 90) is above SAC at 6 tables, so SAC rises after 5 tables.
Work out SMC, AVC and SAC from the table. TVC = TC − 120.
\( SMC: 80,\ 60,\ 40,\ 50,\ 70,\ 90 \)
\( AVC: 80,\ 70,\ 60,\ 57.5,\ 60,\ 65 \)
\( SAC: 200,\ 130,\ 100,\ 87.5,\ 84,\ 85 \)
SAC is lowest at 5 tables (Rs 84). The 6th table costs Rs 90, which is above SAC, so SAC rises to Rs 85.
Option (1) SAC keeps falling up to 6 tables, because AFC keeps falling as output rises. — Incorrect. SAC rises from 84 to 85 at 6 tables. AFC still falls, but the rise in AVC is now larger.
Option (2) AVC is at its lowest at 5 tables, the output where SMC equals AVC. — Incorrect. AVC is lowest at 4 tables (Rs 57.50). At 5 tables SMC (Rs 70) is above AVC (Rs 60).
Option (3) SMC is lowest at 3 tables, so SAC is also at its lowest at 3 tables. — Incorrect. SMC is lowest at 3 tables, but SAC goes on falling up to 5 tables, while SMC stays below it.
Option (4) SMC of the 6th table (Rs 90) is above SAC at 6 tables, so SAC rises after 5 tables. — Correct. An SMC above SAC pulls SAC up.
NCERT (2026-27): “Shapes of the Short Run Cost Curves … Let us now look at SAC. SAC is the sum of AVC and AFC. Initially, both AVC and AFC decrease as output increases. Therefore, SAC initially falls. After a certain level of output production, AVC starts rising, but AFC continuous to fall. Initially the fall in AFC is greater than the rise in AVC and SAC is still falling. But, after a certain level of production, rise in AVC becomes larger than the fall in AFC. From this point onwards, SAC is rising. SAC curve is therefore ‘U’-shaped. It lies above the AVC curve with the vertical difference being equal to the value of AFC. The minimum point of SAC curve lies to the right of the minimum point of AVC curve. Similar to the case of AVC and SMC, as long as SAC is falling, SMC is less than the SAC. When SAC is rising, SMC is greater than the SAC. SMC curve cuts the SAC curve from below at the minimum point of SAC.” |