The Relation Between TC, TVC & TFC
Hi, today I will explain the relation between TC, TVC & TFC. It will be highly beneficial if you read my post on Total cost, Total variable cost, and total fixed cost. I hope you checked the basic formulas of each, we will be using the same to solve some problems related to costs. Let me brief about the table of content in this post:
- The relation between total cost, the total variable cost, and total fixed cost.
- Different types of costs
- Problems related to TC, TVC, and TFC
The relation between TC, TVC & TFC
The trick to explain any type of relation based question in economics is to draw the graph first and then write down the points. As shown below:
- TC = TVC + TFC, TC is the sum of TVC and TFC.
- TC and TVC are parallel to each other.
- TFC is parallel to the x-axis.
- TVC is 0 at 0 levels of output, TVC increases with the increase in the level of output as well as TC increases with the increase in the level of output.
- TC and TVC are both inverse S in shape.
Different Types of Cost
1. Selling Cost
This cost refers to the expenditure done by the producer to promote the sale of the commodity. For example, an advertisement.
2. Production Cost
This cost refers to the expenditure done by the producer on non-factor inputs as well as factor inputs.
3. Implicit Cost
These are the cost of self-owned or self-employed resources. For example, house tax on their own home, loan installments paid on the car. Implicit costs are also known as non-accounting costs.
4. Explicit Cost
These are those cash payments which firm makes to the outsider for hiring their services. For example, wages paid to labor, payment for the raw materials.
5. Economic Cost
It is the sum total of explicit and implicit cost.
Problems related to TC, TVC and TFC
- The TFC of a firm is 12. Given below is the marginal cost. Find TC, TVC, TFC.
Remember, if they give Total Fixed Cost, then the question belongs to the short-run.
MC = Change in TVC/ Change in TC
TVC = Summation MC
TC = TVC + TFC
Have a look,
|Output||MC||TFC||TVC = Summation MC||TC = TFC + TVC|
|1||9||12||9||9 + 12 = 21|
|2||7||12||9 + 7 = 16||12 + 16 = 28|
|3||2||12||16 + 2 = 18||12 + 18 = 30|
|4||4||12||18 + 4 = 22||12 + 22 = 34|
|5||8||12||22 + 8 = 30||12 + 30 = 42|
|6||12||12||30 + 12 = 42||12 + 42 = 54|
2. Find TVC and TFC from the following table:
Remember at 0 levels of output TC = TFC, and TFC remain fixed irrespective of the level of output.
|Output||TC||TFC||TVC = TC – TFC|
Time to Test Yourself
- Find out TVC, Marginal cost and TFC:
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