Instructions

Answer these questions based on the following Information:

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 costÂ MC is the rate of change in total cost for unit change in quantity produced.

Question 32

# Total production in July is 40 units. What is the approximate average unit cost for July?

Solution

For 40 units total fixed costs would be 1200 + 800 = 2000 and variable cost = 3700 . SoÂ total cost = 5700 (approx). HenceÂ approximate average unit cost for July = 5700 / 40 = 142.5 . Hence option C is the correct answer.Â