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Directions: Answer the 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 cost / monthly production, and Marginal cost, MC is the rate of change in total cost for unit change in quantity produced.

What is the correct answer?


For monthly production level in the range of 0 to 30 units,

A. AC is always higher than MC.

B. AC is always lower than MC.

C. AC is lower than MC up to a certain level and then is higher than MC.

D. None of the above is true.

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