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At an output of 7 units a firm has total fixed cost ₹ 1,000 and total variable cost ₹ 400. Using AVC = TVC/Q, the average variable cost is:
A₹ 57.14
B₹ 142.86
C₹ 200.00
D₹ 75.00
Answer & Solution
Correct answer: A. ₹ 57.14
1. AVC = TVC / Q.
2. TVC = ₹ 400 and Q = 7.
3. AVC = 400 / 7 = ₹ 57.14.
4. ₹ 142.86 is AFC (1000/7), ₹ 200 is ATC (1400/7), and ₹ 75 is the marginal cost of the 7th unit, so they answer different questions. Hence ₹ 57.14.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.6–7_
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