The Total Fixed Cost of producing a good is Rs. 20. The Total Cost of producing 3 units of a good is Rs. 44 while that of producing 4 units is Rs. 49. What would be the Marginal Cost of producing the 4th unit of the good?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 5
When a firm produces one more unit, its total cost goes up a little. That addition to total cost is the marginal cost of the extra unit, so the marginal cost of the 4th unit is the total cost of 4 units minus the total cost of 3 units.
Given:
Total fixed cost, TFC = Rs. 20
Total cost of 3 units, TC3 = Rs. 44
Total cost of 4 units, TC4 = Rs. 49
Working it out:
MC4 = TC4 − TC3
MC4 = 49 − 44 = Rs. 5
The fixed cost of Rs. 20 is the same at 3 and at 4 units, so it cancels out of the difference.
Marginal cost of the 4th unit = Rs. 5, which is Option (1).
NCERT (2025-26): “3.2 The Short Run and the Long Run … 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.…” |