Explain total fixed and variable costs, Microeconomics

Assignment Help:

Fixed costs are those which are independent of output that is they do not change with changes in output. These costs are a fixed amount which must be incurred by a firm in the short run whether output is small or large. Even if the firm closes down for some tie in the short run but remains in business these costs have to be borne by it. Fixed costs are also known as overhead costs and include changes such as contractual rent insurance fee maintenance costs property taxes interest on the capital invested minimum administrative expense such as mange salary watchman’s wages etc. thus fixed cost are those which are incurred in hiring the fixed factor of production whose amount cannot be altered in the short run.

Variable Costa on the other hand is those costs which are incurred o the employment of variable factors of production whose amount can be altered in the short run. Thus the total variable costs change with changes in output in the short run they increase or decrease when the output rises or falls. These costs include payments such as wages of labour employed price of the raw materials fuel and power used, the expenses incurred on transporting and the like. If a firm shuts down for some time in the short run, then it will not use the variable factors of production and will not therefore insure any variable costs increase with the increase in the level of production. Variable costs are also called prime costs or direct costs. Total coats fo a business is the sum of its total variable costs and total fixed costs. Thus

TC = TFC + TVC

Where TC stands for total cost TFC for total fixed cost and TVC for total variable cost,

Because one component the total variable cost (TVC) varies with the changes in output the total cost of production (TC) will also change with the changes in the level of output. The total cost increases as the level of output rises.

It should be noted that total cost (TC) is a function of total output (Q) the greater the output the greater will be the total cost in symbols we can write

TC = f(Q)

Where Q stands for output

We can prove this as follows

TC = TFC + TVC.


Related Discussions:- Explain total fixed and variable costs

Rubenstein''s model in Game theory, What is Rubenstein''s model in Game the...

What is Rubenstein''s model in Game theory? A Rubinstein bargaining model is mainly refers to class of bargaining games which is main feature of alternating offers through an infi

Price mechanism, 1.what is price mechanism? 2.how does price mechanism bene...

1.what is price mechanism? 2.how does price mechanism benefit an echonomy. 3.what are the characteristics of a centrally planned economy?

Canon, analyze Swot of Canon

analyze Swot of Canon

Which of these will be included in US GDP for 2005, Which of these will be ...

Which of these will be included in US GDP for 2005? a) A car produced in Japan in 2005 and sold in the US in 2005 b) A car produced in the US in 2004 and sold in Japan in 2005 c) A

Supply, concept of supply

concept of supply

What is meant by the identification problem, 1. What is simultaneous biases...

1. What is simultaneous biases? Discuss the cause of ednoginity in regression analysis. 2. Explains concisely what is meant by ' the identification problem'' in the context of l

Define law of demand, Define law of demand.  Answer:   Quantity demande...

Define law of demand.  Answer:   Quantity demanded increases as price falls, other things constant. In other words, "Other things remaining the same, when the price of a good r

Mortgage delinquency, The issue I like to discuss is the ‘US Mortgage Delin...

The issue I like to discuss is the ‘US Mortgage Delinquency'. The Mortgage Delinquency may be defined in simple term as the ‘repeated failure to make loan repayment on time'. The d

Time series, uses of time series in Indian Economy?

uses of time series in Indian Economy?

Visit to village panchayat for agriculture based project., any village panc...

any village panchayat in west bengal and get information for doing a project.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd