Posted by Anjali Kaur on Aug 26, 2020

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:

  1. The relation between total cost, the total variable cost, and total fixed cost.
  2. Different types of costs
  3. 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:

  1. TC = TVC + TFC, TC is the sum of TVC and TFC.
  2. TC and TVC are parallel to each other.
  3. TFC is parallel to the x-axis.
  4. 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.
  5. 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

  1. The TFC of a firm is 12. Given below is the marginal cost. Find TC, TVC, TFC.
OutputMC
19
27
32
44
58
612

Solution.

Remember, if they give Total Fixed Cost, then the question belongs to the short-run.

In short-run:

MC = Change in TVC/ Change in TC

TVC = Summation MC

TC = TVC + TFC

Have a look,

OutputMCTFCTVC = Summation MCTC = TFC + TVC
191299 + 12 = 21
27129 + 7 = 1612 + 16 = 28
321216 + 2 = 1812 + 18 = 30
441218 + 4 = 2212 + 22 = 34
581222 + 8 = 3012 + 30 = 42
6121230 + 12 = 4212 + 42 = 54

2. Find TVC and TFC from the following table:

OutputTC
010
118
224
328
435

Solution:

Remember at 0 levels of output TC = TFC, and TFC remain fixed irrespective of the level of output.

OutputTCTFCTVC = TC – TFC
010100
118108
2241014
3281018
4351025

Time to Test Yourself

  1. Find out TVC, Marginal cost and TFC:
OutputTC
050
170
290
3105
4120

You know, where to drop your solutions. Contact@LearnWithAnjali.com

I hope it was helpful. You can read more about the concept of production function and the terms related to production.

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