What are the total fixed cost, total variable cost and total cost of a firm? How are they related?


a) Total fixed cost refers to the cost which remains constant irrespective to the level of output, the total fixed cost will never change. For example, suppose Mr X hired a shop at a dent of rupees 500 per month for selling grocery, during first month he keeps a shop closed even then he will have to pay the rent so rent is fixed cost.


Let’s understand it with help of following cost schedule and graph


Cost Schedule


No. Of Units Produced



Total Fixed Cost



0


1000


2000


3000


4000


5000



1000


1000


1000


1000


1000


1000



Graph



b) Total variable cost is the cost of the variable inputs employed by the firm which is directly proportional to the level of change in the output. It becomes zero when the level of output is zero, increases with output, decreases with output.


Let’s understand it with help of following cost schedule and graph


Cost Schedule


No. Of Units Produced



Total Variable Cost



0


1000


2000


3000


4000


5000



0


1000


1800


2600


3500


5000




c) Total cost is the sum of total fixed cost and total variable cost. At zero level of output total cost will be just the fixed cost.


Let’s understand it with help of following cost schedule and graph


Cost Schedule


No. Of Units Produced



Total Cost



0


1000


2000


3000


4000


5000



1000


2000


2800


3600


4500


6000



Graph




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