Page 187 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes When marginal cost gets low, then TVC increases in decreased rate. But when marginal cost is increased
then the TVC increases in increased rate. (Note: Marginal cost indicates the rate of TVC; Increased MC
means TVC is increasing in increased rate; Decreased MC means TVC is increasing in decreased rate).

The implicit cost of production is self costs as well as the factor cost.

9.4 Relation Among Total Cost, Total Fixed Cost and
Total Variable Cost

The total cost in various levels of production in short run is the addition of total fixed cost and total
variable cost.

The relation among the total cost, total fixed cost and total variable cost is represented by Table 3 and
Fig. 9.4.

Table 3: Total Cost
Output Fixed Cost Variable Cost Total Cost
0 10 0 10
1 10 10 20
2 10 18 28
3 10 24 34
4 10 28 38
5 10 33 42
6 10 38 48
7 10 46 56
8 10 62 72
In Table 3, the total cost can be assumed by the addition of fixed cost and variable cost. The total cost
is increased as the production increases. When production is zero even then the total cost is ` 10. The
variable cost is zero though. When production is increased by 6 units, then the variable cost is ` 48
( 38 + 10). The total cost can be represented by Fig. 9.2 also. In Fig. 9.4, the quantity of production
is on axis OX and the cost is on axis OY. FC is closed cost curve. VC is variable curve and TC is total cost
curve. This curve represents the addition of FC and VC. TC curve starts from the original point of FC curve.

Fig. 9.4

Y
80 Total Costs
70 TC
60 TC
Cost (`) 50
40
30
20
10 FC
0 X
12 3 45 6 7 8
Output

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