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A firm's average fixed cost is ₹ 20 when it produces 6 units. What will its average fixed cost be at 4 units of output?
A₹ 30
B₹ 20
C₹ 40
D₹ 60
Answer & Solution
Correct answer: A. ₹ 30
1. AFC = TFC / Q, so first recover TFC: TFC = AFC × Q = 20 × 6 = ₹ 120.
2. TFC is constant at ₹ 120 across all output levels.
3. AFC at 4 units = 120 / 4 = ₹ 30.
4. ₹ 20 (B) assumes AFC is unchanged, but AFC rises as output falls; ₹ 40 (C) and ₹ 60 (D) use the wrong quantity. Hence ₹ 30.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.21–22_
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