Posted by Anjali Kaur on Aug 22, 2020

Total Cost, Total Fixed Cost, and Total Variable Cost

To understand the concept of the total cost, total fixed cost, and total variable cost, we will start with the meaning of cost, cost of production, and so on. I will be discussing these cost meaning, curves, schedule, and the relationship between them in detail. In this post, I will be covering the following concepts:

  1. Cost
  2. Cost of production
  3. Total Fixed Cost
  4. Total Variable Cost
  5. Total Cost
  6. Marginal Cost

What is Cost?

Cost refers to monetary and non-monetary expenditure incurred by a producer on the factor inputs as well as non-factor inputs.

What is the Cost of Production?

The cost of production shows the functional relationship between output and cost involved in carrying out the production process.

What is the Total Fixed Cost?

The total fixed cost, fixed cost, supplementary cost, and overhead cost means the same. Total fixed cost is those which remain fixed even when the output is changing.

For example, fixed rent on the land, fixed tariff on electricity, etc.

Total Fixed Cost Schedule

OutputTotal Fixed Cost
020
120
220
320
420

Total Fixed Cost Curve

The total fixed cost curve is perfectly elastic or it is parallel to the x-axis.

What is the Total Variable Cost?

The total variable cost or the variable cost or prime cost or direct cost or special cost is the one that varies with the level of output. It can be 0 at 0 levels of output.

For example, wages of temporary laborers, cost of raw material, electricity, etc.

Total Variable Cost Schedule

OutputTotal Variable cost
00
110
218
324
428
538

Total Variable Cost Curve

The total variable cost curve is inverse S in shape.

What is the Total Cost?

Total cost is the sum of the Total Fixed Cost and Total Variable Cost.

Total Cost = Total Fixed Cost + Total Variable Cost

TC = TFC + TC

Total Cost Schedule

To derive Total cost schedule, we will add TFC and TVC

OutputTFCTVCTC = TFC+ TVC
020020
1201030
2201838
3202444
4202848
5203858

Total Cost Curve

The shape of the total cost curve is parallel to the total variable cost. The total cost curve is also inverse S in shape.

The gap between TC and TVC is fixed due to Total fixed cost.

TC- TVC = TFC

What is the Marginal Cost?

In the short run, when both TVC and TFC exist, then marginal cost is the addition made to the TVC when one more unit of the output is produced.

In short run, MC = Change in TVC/ Change in the level of output

In the long run, when only TVC exist, that is, TVC + 0 = TC because total fixed cost do not exist in the long run. Then, TVC and TC become equal. So, marginal cost is the addition made to the total cost when one more unit of the output is produced.

In the long run, MC = Change in the TC/ Change in the level of output

Marginal Cost Curve

Marginal cost curve is U shaped.

Tips to understand the cost concept:

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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