Total cost means the total cost of producing any given amount of output. When we ass total fixed and total variable costs at different rates of output, we get the corresponding total costs.
Thus,
TC = TFC + TVC
Since, fixed cost are constant and variable costs necessarily rise as output rises, total costs also rise with the output or, to put the point more formally, TC is a function of total product and varies directly with it. TC = f (9)
TC (Total cost) curve can be obtained by adding TFC and TVC curves vertically at each point.
Again, since the total fixed costs by definition remain constant, the changes in total costs are entirely due to the changes in total variable costs. In other words, the rate of increase of total cost is the same as of total variable cost, as one of the two components of total cost, remains constant. TC and TVC curves therefore have the similar shapes; the only difference is that TVC starts from origin (0) while TC curve starts above the origin.
The relationship between these three – TFC, TVC and TC is illustrated in the following table and diagram:
Units of Output | TFC (Rs.) | TVC (Rs.) | TC (Rs.) | |
0 | 200 | 0 | 200 | |
1 | 200 | 180 | 380 | |
2 | 200 | 300 | 500 | |
3 | 200 | 400 | 600 | |
4 | 200 | 520 | 720 | |
5 | 200 | 650 | 850 | |
6 | 200 | 820 | 1020 | |
7 | 200 | 1060 | 1260 | |
8 | 200 | 1400 | 1600 |
The difference between the TFC and TC curves represents the TVC. Since TVC rises with the increase in output, this difference between TFC and TC also goes on increasing. This is shown in the following diagram.
Similarly the vertical difference between TC and TVC curve represents the Total fixed Cost (TFC). Since total curves also remains the same. That is way TC and TVC curves remain parallel to each.
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