A firm’s SAC is Rs 20 at 10 units of output and Rs 16 at 20 units. Its AVC at 20 units is Rs 13. What is its total fixed cost, and how does AVC change as output rises from 10 to 20 units?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 60; AVC falls
Since SAC = AVC + AFC, the gap between SAC and AVC is AFC, and TFC = AFC × output.
Given:
SAC at 10 units = Rs 20
SAC at 20 units = Rs 16
AVC at 20 units = Rs 13
\( \displaystyle AFC_{20} = 16 - 13 = 3 \)
\( \displaystyle TFC = 3 \times 20 = 60 \)
\( \displaystyle AFC_{10} = \frac{60}{10} = 6 \)
\( \displaystyle AVC_{10} = 20 - 6 = 14 \)
TFC is Rs 60. AVC goes from Rs 14 at 10 units to Rs 13 at 20 units, so it falls.
NCERT (2026-27): “3.7.1 Short Run Costs In Table 3.3, we get the AFC-column by dividing the values of the second column by the corresponding values of the first column. Similarly, we get the AVC-column by dividing the values of the third column by the corresponding values of the first column. At zero level of output, both AFC and AVC are undefined. For the first unit of output, AFC is Rs 20 and AVC is Rs 10. Adding them, we get the SAC equal to Rs 30. …” “… Total fixed cost, however, is independent of the amount of output produced and remains constant for all levels of production.” |