CAT 2000 — DILR Question 31
Answer the following question based on the information given below.
ABC Ltd. produces widgets for which the demand is unlimited and they can sell all of their production. The graph below describes the monthly variable costs incurred by the company as a function of the quantity produced. In addition, operating the plant for one shift results in a fixed monthly cost of Rs. 800. Fixed monthly costs for second shift operation are estimated at Rs. 1200. Each shift operation provides capacity for producing 30 widgets per month.
Note : Average unit cost, AC = Total monthly costs/monthly production, and
Marginal cost, MC is the rate of change in total cost for unit change in quantity produced.
ABC Ltd. is considering increasing the production level. What is the approximate marginal cost of increasing production from its July level of 40 units?
Answer & solution
- A
110
130
- C
240
- D
160
Total cost for 41 units = 800 + 1200 + 3700 = 5700
Total cost for 51 units = 800 + 1200 + 5000 = 7000
∴ Total cost for 10 units = 7000 − 5700 = 1300
∴ Cost per unit = Marginal Cost = Rs. 130
Hence, option (b).