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CAT 2000 — DILR Question 35

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Passage / Data

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.

For monthly production level in the range of 0 to 30 units

Answer & solution

  • A

    AC is always higher than MC.

  • B

    AC is always lower than MC.

  • C

    AC is lower than MC up to a certain level and then is higher than MC.

  • None of the above is true.

Solution

From the table it is clear that none of the statements is true.

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Hence, option (d).

CAT 2000 DILR Q35: For monthly production level in the range of 0 to 30 units — Solution | TheCATExam