Comprehension
The following graph represents the variable cost of widgets as a function of quantity produced. The cost of production has two components, variable cost- which is given in the graph, and fixed cost- which is Rs. 800 for the first shift in which 30 widgets can be produced and if more production is desired then a second shift is started which can produce an additional 30 widgets The fixed cost of the second shift is Rs.1200. 
Question: 1
Total production in July is 40 units. What is the approximate average unit cost for July?
Total production in July is 40 units. What is the approximate average unit cost for July?
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Always remember that average cost is calculated by dividing the total cost by the number of units produced. Make sure to consider both fixed and variable costs.
Updated On: Aug 5, 2025
- 3600
- 90
- 140
- 115
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The Correct Option is C
Solution and Explanation
To calculate the average unit cost, we first need to calculate the total cost for 40 units. The total cost is the sum of the fixed cost and the variable cost. From the graph, the variable cost at 40 units can be approximated, and the fixed cost is Rs. 800. The total cost is the sum of these two components.
\[
\text{Total Cost} = \text{Fixed Cost} + \text{Variable Cost} = 800 + \text{variable cost at 40 units}
\]
Then, the average unit cost is:
\[
\text{Average Unit Cost} = \frac{\text{Total Cost}}{40}
\]
After calculating, the average unit cost for July is approximately 140.
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Question: 2
ABC Ltd. is considering increasing the production level. What is the approximate marginal cost increasing production from its July level of 40 units?
ABC Ltd. is considering increasing the production level. What is the approximate marginal cost increasing production from its July level of 40 units?
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To find marginal cost, subtract the total cost at one level of production from the total cost at the next level, and divide by the number of units produced.
Updated On: Aug 5, 2025
- 110
- 140
- 150
- 160
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The Correct Option is C
Solution and Explanation
Marginal cost is the change in total cost when producing one more unit. We look at the change in total cost from producing 40 units to 41 units. From the graph, we can approximate the variable cost for the additional unit produced and calculate the marginal cost by dividing the change in total cost by the change in the number of units.
After calculations, the marginal cost is found to be approximately Rs. 150.
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Question: 3
From the data provided, it can be inferred that, for production levels in the range of 0 to 60 units:
From the data provided, it can be inferred that, for production levels in the range of 0 to 60 units:
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When analyzing the relationship between marginal cost and production quantity, look for changes in the slope of the cost curve to identify where the MC increases or decreases.
Updated On: Aug 5, 2025
- MC is an increasing function of production quantity.
- MC is a decreasing function of production quantity.
- Initially MC is a decreasing function of production quantity, attains a minimum and then it is an increasing function of production quantity.
- None of the above
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The Correct Option is C
Solution and Explanation
From the graph, we can see that the marginal cost (MC) initially decreases as production increases, reaches a minimum, and then starts increasing again. Therefore, the Correct Answer is option (3).
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Question: 4
Suppose that each widget sells for Rs. 150. What is the profit earned by ABC Ltd. in July? (Profit is defined as the excess of sales revenue over total cost.)
Suppose that each widget sells for Rs. 150. What is the profit earned by ABC Ltd. in July? (Profit is defined as the excess of sales revenue over total cost.)
Show Hint
To calculate profit, subtract total cost from total revenue. Ensure that both components (fixed and variable costs) are correctly calculated.
Updated On: Aug 5, 2025
- 2400
- 1600
- 400
- 0
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The Correct Option is C
Solution and Explanation
To calculate profit, we first find the total sales revenue by multiplying the price per unit by the number of units sold:
\[
\text{Sales Revenue} = 150 \times 40 = 6000
\]
Then, we subtract the total cost (fixed cost + variable cost) from the sales revenue:
\[
\text{Profit} = \text{Sales Revenue} - \text{Total Cost} = 6000 - 5600 = 400
\]
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Question: 5
Assume that the unit price is Rs. 150 and profit is defined as the excess of sales revenue over total costs. What is the monthly production level of ABC Ltd. at which the profit is highest?
Assume that the unit price is Rs. 150 and profit is defined as the excess of sales revenue over total costs. What is the monthly production level of ABC Ltd. at which the profit is highest?
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To maximize profit, calculate the profit at different levels of production and identify the level where profit is highest.
Updated On: Aug 5, 2025
- 30
- 50
- 60
- 40
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The Correct Option is B
Solution and Explanation
To find the production level at which profit is highest, we calculate the profit for different production levels (30, 40, 50, etc.). We observe that the profit is maximized at 50 units, based on the sales revenue and total cost at that level.
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Question: 6
For monthly production level in the range of 0 to 30 units:
For monthly production level in the range of 0 to 30 units:
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When comparing average cost and marginal cost, observe the behavior of the curves to see where AC is lower or higher than MC.
Updated On: Aug 5, 2025
- AC is always higher than MC
- AC is always lower than MC
- AC is lower than MC up to a certain level and then is higher than MC.
- None of the above is true.
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The Correct Option is C
Solution and Explanation
From the graph and cost analysis, we see that average cost (AC) is lower than marginal cost (MC) up to a certain point in production, after which AC exceeds MC. Therefore, the Correct Answer is (3).
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