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

Elasticity, elasticity concept in policy formulation

elasticity concept in policy formulation

Define contribution pensions, Q. Define Contribution Pensions? Defined ...

Q. Define Contribution Pensions? Defined Contribution Pensions: A pension plan which makes no specified promise about level of pension paid out after retirement. In its place,

Fluctuations in growth rates - estimation of national income, Fluctuations ...

Fluctuations in Growth Rates: Fluctuations in year-to-year growth rates in early stages were very marked, which indicated that the economy had failed to create conditions cond

Open access regime , Open Access Regime Normal 0 fa...

Open Access Regime Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Explain decision-making and characteristics of speculative, Consumers purch...

Consumers purchase a house or multiple dwellings for a number of reasons. But what is the rationale behind their decision to buy and/or sell a house, flat or apartment? Do consumer

Economic efficiency, Economic Ef ficiency The effort to ma...

Economic Ef ficiency The effort to making products and services in the least costly way without sacrificing excellence.

Assuming the price elasticity, Assume the United States exports 1000 comput...

Assume the United States exports 1000 computers at a price of $3000 each and imports 15 UK autos at a price of 10000 pounds each. Assume that the dollar/pound exchange rate is $2 p

What are the main causes of unemployment, What are the main causes of unemp...

What are the main causes of unemployment? Two main paths are available; demand-deficient unemployment and real wage unemployment. After explaining unemployment (percentage o

Significance of education to economic development, Normal 0 fal...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Demand and supply, Dance fans switches away from Dance music to R&B music A...

Dance fans switches away from Dance music to R&B music AND the price of MP3 players increases

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