Question

For 8 units of output, AFC is Rs 12.50 and AVC is Rs 81.25. TC at this output level will be:

• A. Rs 93.75
• B. Rs 97.78
• C. Rs 880.00
• D. Rs 750.00

Hint:

To avoid multi-step multiplication, simply add AFC and AVC first to get ATC ($12.50 + 81.25 = 93.75$), and then multiply the result by the output quantity ($93.75 \times 8 = 750$).

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
Total Cost ($TC$) is the sum of Total Fixed Cost ($TFC$) and Total Variable Cost ($TVC$) at a given level of production.

Step 2: Key Formula or Approach:
We can express the relationships between average and total costs as follows:
\[ \text{TFC} = \text{AFC} \times \text{Output (Q)} \]
\[ \text{TVC} = \text{AVC} \times \text{Output (Q)} \]
\[ \text{TC} = \text{TFC} + \text{TVC} \]
Alternatively, we can compute Average Total Cost ($ATC$) first:
\[ \text{ATC} = \text{AFC} + \text{AVC} \]
\[ \text{TC} = \text{ATC} \times \text{Output (Q)} \]

Step 3: Detailed Explanation:
We are given:
- Output ($Q$) $= 8$ units
- Average Fixed Cost ($\text{AFC}$) $= \text{Rs } 12.50$
- Average Variable Cost ($\text{AVC}$) $= \text{Rs } 81.25$
First, let us calculate the Average Total Cost (ATC):
\[ \text{ATC} = 12.50 + 81.25 = \text{Rs } 93.75 \]
Now, let us calculate the Total Cost (TC):
\[ \text{TC} = \text{ATC} \times Q = 93.75 \times 8 \]
\[ \text{TC} = 750.00 \]
Thus, the Total Cost of producing 8 units is Rs 750.00.
Final Answer:
The Total Cost is Rs 750.00, matching Option (D).