With fixed costs of Rs. 400, a firm has average total costs of Rs. 3 and average variable costs of Rs. 2.50. Its output is

The correct answer is B. 400 units.

Average total cost (ATC) is total cost (TC) divided by output (Q). In this case, ATC = 3 = TC/Q. We know that fixed costs (FC) are 400, so variable costs (VC) are TC – FC = 3Q – 400. We also know that AVC = VC/Q = 2.50. Substituting this into the equation for TC, we get 3Q – 400 = 2.50Q. Solving for Q, we get Q = 400 units.

Option A is incorrect because it is the average variable cost, not the average total cost. Option C is incorrect because it is twice the average total cost, which would mean that the firm is not covering its fixed costs. Option D is incorrect because it is four times the average total cost, which would mean that the firm is making a very large profit.