Behavior of TVC .. THEORY OF COST +2
Economics
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A firm’s cost reflect its production process. Total variable cost is a part of total cost which reflect costs that change when the firm alters the quantity of output produced.
Initially tvc curve increases at diminishing rate- This is because in the initial production levels firm is able to produce an extra unit of output at low cost i.e though variable cost increases but it increases at diminishing rate with subsequent output levels. The reason being that the firm is able to tap the availabe machinery and other inputs efficiently. ( in order to produce output, firm needs to employ labor and initially its easy to employ extra labor thus improving efficiency)
Later TVC increases at increasing rate- Now as firm employs new labor to produce more output due to this the workplace becomes crowded and it becomes difficult to work. Thus efficiency reduces and to produce extra ouput the cost increases but at an increasing rate.
Initially tvc curve increases at diminishing rate- This is because in the initial production levels firm is able to produce an extra unit of output at low cost i.e though variable cost increases but it increases at diminishing rate with subsequent output levels. The reason being that the firm is able to tap the availabe machinery and other inputs efficiently. ( in order to produce output, firm needs to employ labor and initially its easy to employ extra labor thus improving efficiency)
Later TVC increases at increasing rate- Now as firm employs new labor to produce more output due to this the workplace becomes crowded and it becomes difficult to work. Thus efficiency reduces and to produce extra ouput the cost increases but at an increasing rate.
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TVC is inversely S-shaped it starts from origin and is always parallel to TC.
It follows law of variable proportion.
It follows law of variable proportion.
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