At 10 units of output, a firm’s total variable cost is Rs 120 and its total fixed cost is Rs 30. What is its short run average cost (SAC)?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs 15
Given:
Output, q = 10 units
TVC = Rs 120
TFC = Rs 30
SAC is total cost per unit of output.
\( TC = TVC + TFC = 120 + 30 = 150 \)
\( \displaystyle SAC = \frac{TC}{q} = \frac{150}{10} = 15 \)
SAC = Rs 15
Option (1) Rs 150 — this is TC, not cost per unit.
Option (3) Rs 12 — this is AVC (120/10), which leaves out the fixed cost.
Option (4) Rs 3 — this is AFC (30/10), the fixed cost only.
NCERT (2026-27): “3.7.1 Short Run Costs … The short run average cost (SAC) incurred by the firm is defined as the total cost per unit of output. We calculate it as SAC = TC/q (3.7) In Table 3.3, we get the SAC-column by dividing the values of the fourth column by the corresponding values of the first column. At zero output, SAC is undefined. For the first unit, SAC is Rs 30; for 2 units of output, SAC is Rs 19 and so on.” |