A bakery operating in the short run incurs a Total Fixed Cost (TFC) of \text{₦}1,200. When… — JAMB UTME

A bakery operating in the short run incurs a Total Fixed Cost (TFC) of $\text{₦}1,200$ . When output is $6$ loaves of bread, the bakery's Total Cost (TC) is $\text{₦}3,000$ . When output increases to $7$ loaves, its Total Variable Cost (TVC) becomes $\text{₦}2,240$ . What is the Marginal Cost (MC) of producing the $7\text{th}$ loaf?

$\text{₦}440$ Answer
B
$\text{₦}320$
C
$\text{₦}1,040$
D
$\text{₦}760$

Answer

The Marginal Cost of producing the 7th loaf is

\text{₦}440

At an output level of

6

loaves, Total Variable Cost is

TC_6 - TFC = \text{₦}3,000 - \text{₦}1,200 = \text{₦}1,800

. At

7

loaves, Total Cost is

TFC + TVC_7 = \text{₦}1,200 + \text{₦}2,240 = \text{₦}3,440

. The Marginal Cost of the

7\text{th}

unit is the change in Total Cost (

3,440 - 3,000 = \text{₦}440

Step-by-Step Solution

Calculate Total Variable Cost at 6 units of output

TVC_6 = TC_6 - TFC = \text{₦}3,000 - \text{₦}1,200 = \text{₦}1,800

Total cost is the sum of total fixed cost and total variable cost (

TC = TFC + TVC

Calculate Total Cost at 7 units of output

TC_7 = TFC + TVC_7 = \text{₦}1,200 + \text{₦}2,240 = \text{₦}3,440

Fixed cost remains constant at

\text{₦}1,200

in the short run.

Calculate Marginal Cost of the 7th unit

MC_7 = TC_7 - TC_6 = \text{₦}3,440 - \text{₦}3,000 = \text{₦}440

Marginal cost is the addition to total cost resulting from producing one additional unit of output (

MC = \Delta TC / \Delta Q

Key Concept

Short-Run Marginal Cost and Total Cost Derivations

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