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A firm has a total fixed cost of ₹ 2,000. When it produces 100 units the average fixed cost is ₹ 20. If output rises to 200 units, the average fixed cost becomes:
A₹ 20
B₹ 10
C₹ 40
D₹ 5
Answer & Solution
Correct answer: B. ₹ 10
1. AFC = TFC / Q.
2. TFC is constant at ₹ 2,000.
3. At Q = 200, AFC = 2000 / 200 = ₹ 10.
4. The answer cannot be ₹ 20 (A, that was for 100 units); doubling output halves AFC, not quarters it (D), and ₹ 40 (C) would mean AFC rose, which is impossible. Hence ₹ 10.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.5–6_
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