What are the total fixed cost, total variable cost and total cost of a firm? How are they related?
Answers
Answer:
Total Fixed Cost (TFC)
Total fixed cost are the payments made by the producer on fixed factors during the process of production.
eg: Payments on Land, Building and Machinery.
Total Variable Cost (TVC)
Total variable cost are the payments made by the producer on variable factors during the process of production.
eg: Payments on Labour, Raw materials and fuel etc.
Total Cost (TC)
It refers to the total expenditure paid on both fixed and variable factor during the process of production.
Relationship between total fixed cost, total variable cost and total cost
Total Cost is the horizontal summation of Total Fixed Cost and Total Variable Cost.
TC = TFC = TVC
Total Cost and Total Variable Cost curve are always parallel to each other just because of constant Total Fixed Cost.
