It is known that the cost of producing 50 units of a commodity is ₹250 and cost of producing 100 units is 350. Assuming average variable cost is fixed, cost function will be
Answer & explanation
Correct answer: option 2
Let the cost function be
$C = a + bQ$
Since average variable cost is fixed, $b$ is constant.
Given
$C(50)=250$
$C(100)=350$
Subtract
$350-250 = b(100-50)$
$100 = 50b$
$b = 2$
Now find $a$
$250 = a + 2(50)$
$250 = a + 100$
$a = 150$
The cost function is
$C = 150 + 2Q$