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Consider the cost data: Output (Q): 0, 1, 2, 3, 4, 5, 6 and Total Cost (₹): 240, 330, 410, 480, 540, 610, 690. What is the average fixed cost at 2 units of output?
A₹ 120
B₹ 80
C₹ 85
D₹ 205
Answer & Solution
Correct answer: A. ₹ 120
1. Total fixed cost is the total cost at zero output, since no variable cost exists there: TFC = ₹ 240.
2. TFC stays constant at all output levels.
3. AFC at 2 units = TFC / Q = 240 / 2 = ₹ 120.
4. ₹ 205 (D) is ATC at 2 units (410/2), ₹ 85 (C) is AVC at 2 units ((410−240)/2), and ₹ 80 (B) is the marginal cost of the 2nd unit (410−330). Hence ₹ 120.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.18–19_
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