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

Forecasting, what are the forecasting techniques

what are the forecasting techniques

Principle of economics , A city government regulates taxi fares.  It also l...

A city government regulates taxi fares.  It also limits the number of taxicabs (by licensing), and has not changed the limit on cabs for lot of years.  At one time vacant taxis wer

Capital account, Capital Account: The Capital Account presents transfe...

Capital Account: The Capital Account presents transfers of money and other capital items and changes in the country's foreign assets and liabilities resulting from the transac

Explicit cost, Explicit cost: Explicit costs are payments made by the ...

Explicit cost: Explicit costs are payments made by the firm when it purchases or hires factors of production for the production of goods and services. They are also referred t

PPC, could a nations production possibilities curve ever shift inward

could a nations production possibilities curve ever shift inward

The demand for big macs, illustrate and explain the changing demand gor big...

illustrate and explain the changing demand gor big Mac using the indifference curves and budget line

Private and social benefits, Private and Social Benefits Private benef...

Private and Social Benefits Private benefits are those which accrue to an individual. They may be both monetary and non monetary, direct and indirect. Earnings of an individua

Fit a simple linear regression model to the data, 1. Refer to the data in t...

1. Refer to the data in the file "asm2Q1.xls" on the annual number of fatalities (FATALS, y ) from gas and dust explosion in coal mines for the years 1915 to 1978 and the number o

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