Question
Distinguish between:
- Fixed Costs and Variable Costs.
- Average Cost and Marginal Cost.
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S.No.
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Fixed Costs
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Variable Costs
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1.
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Fixed Cost are the costs which do not change with change in the level of output.
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Variable costs are the costs which directly change with change in the level of output.
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2.
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These costs remain even if the output is zero.
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There are no variable costs at zero level of output.
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3.
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Example: Rent for factory building, wages to permanent staff, interest on capital etc.
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Example: Expenses on raw material used in production, wages to daily workers etc.
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| S.No. |
Average Cost
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Marginal Cost
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| 1. |
Average cost is cost per unit of production.
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Marginal cost is addition made to total cost when an additional unit of a commodity is produced.
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| 2. |
It is calculated by dividing the total cost by number of units produced AC = Total Cost/No. of units produced.
$\text{AC}=\frac{\text{TC}}{\text{Q}}$
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It is calculated by dividing the change in total variable cost by change in number of units produced.
$\text{MC}=\frac{\Delta\text{TVC}}{\Delta\text{Q}}$
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| 3. |
$\text{AC} = \text{AFC} + \text{AVC}$
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$\text{MC}_\text{n}=\text{TVC}_\text{n}-\text{TVC}_{\text{n}-1}$
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| Wages (in Rs.) | 10 | 20 | 30 | 40 | 50 |
| Number of Workers | 4 | 5 | 3 | 2 | 5 |