Economics cpt- avrage fix cost

Originally posted by : UMANG SHAHI
	need an explanation to this simple question. please help! output- 0 1 2 3 4 5 6 total cost- 240 330 410 480 540 610 690 the average cost of 2 units of output is? A) rs 80 B) rs 85 C) rs 120 D) rs 205 ans. (C)

Here is the explanation to your q's:-

1.Fixed cost-A fixed cost is such cost which is constant and doesn't change with the change in output.This means a fixed cost is always incurred even if there is no production in place.

2.Variable cost-A variable cost is such cost which is related to the production and is always calculated on per unit basis of the product.It is directly proportional to the production.

Now,coming back to the q's,it is given that the cost incurred for 0 level of production is 240/-.This means one is bound to incur such cost even if there is no production in place(fixed in nature).So,the fixed cost component is 240/-.This fixed cost won't change even if more units are produced and thus would remain fixed at 240/-.Thus,the total fixed cost for prodcution of 2 units is 240/-.

Therefore the avg cost is 240/2=120/-

I hope I have solved your problem...