In the short run, if output is zero, total cost is equal to:
Options
AZero
BVariable cost
CFixed cost
DMarginal cost
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Theory of Production and CostMTP - Dec 2023Question 53 of 20
All Questions Correct Answer
✅ Option c — Fixed cost
All Options:
- AZero
- BVariable cost
- CFixed cost
- DMarginal cost
Detailed Solution & Explanation
To determine the total cost when output is zero, we need to understand the concept of costs in the short run.
• In the short run, costs are categorized into fixed costs and variable costs.
• Fixed costs are expenses that remain the same even if the output level changes, such as rent, salaries, and insurance.
• Variable costs, on the other hand, are expenses that change with the level of output, such as raw materials, labor, and marketing expenses.
When output is zero, variable costs are zero because no production is taking place, and therefore, no variable costs are incurred.
• As a result, the total cost is equal to the fixed cost, which remains the same regardless of the output level.
The correct answer is based on the definition of fixed costs in economics, which states that fixed costs are costs that do not change with the level of production.
Option A is incorrect because total cost cannot be zero when there are fixed costs, and option B is incorrect because variable costs are zero when output is zero.
About This Chapter: Theory of Production and Cost
Paper
Paper 4: Business Economics
Weightage
10%
Key Topics
Function, Cost Concepts (Short/Long Run)
This chapter explores how firms produce goods and services. It covers Production Functions, the Laws of Returns (Increasing, Constant, Diminishing), and all cost concepts including Total Cost, Average Cost, Marginal Cost, Fixed Cost, and Variable Cost. Understanding why the AC and MC curves are U-shaped is crucial for exam success.
View Official ICAI SyllabusExam Strategy Tip
The relationship between MC and AC curves is a favorite examiner topic. Remember: MC cuts AC at its minimum point. Also focus on the difference between Short Run and Long Run cost curves.
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