Question

The cost function of a firm is given below:

Output	0	1	2	3	4
Total cost (₹)	60	80	100	111	116

Find: 

1. Total Fixed Cost
2. Total Variable Cost
3. Average Fixed Cost
4. Average Variable Cost
5. Marginal Cost

Answer 1

i. Total Fixed Cost (TFC)

TFC remains constant, even when output is zero.

TFC = TC when output is 0 = ₹ 60

ii. Total Variable Cost (TVC)

TVC = TC − TFC

Output	TC	TVC = TC − 60
0	60	0
1	80	20
2	100	40
3	111	51
4	116	56

iii. Average Fixed Cost (AFC)

AFC = TFC ÷ Output

Output	TFC	AFC (₹)
0	60	∞ (undefined)
1	60	60
2	60	30
3	60	20
4	60	15

iv. Average Variable Cost (AVC)

AVC = TVC ÷ Output

Output	TVC	AVC (₹)
0	0	– (undefined)
1	20	20
2	40	20
3	51	17
4	56	14

v. Marginal Cost (MC)

MC = Change in TC ÷ Change in Output

From Q	To Q	TC Change	MC
0	1	80 − 60	20
1	2	100 − 80	20
2	3	111 − 100	11
3	4	116 − 111	5