Question

Explain the concepts of 'total fixed cost', 'total variable cost', and 'total cost'.

Hint:

Fixed costs remain constant irrespective of output, while variable costs increase with production.

Answer 1

• Total Fixed Cost (TFC): Costs that do not vary with output, such as rent and salaries.
• Total Variable Cost (TVC): Costs that vary with output, such as raw materials and labor.
• Total Cost (TC): The sum of TFC and TVC, i.e., \( TC = TFC + TVC \).