Illustrate the total cost graph. You must include total costs, variable costs and fixed costs.

Solutions

Expert Solution

Total cost is the cost of producing goods and services. It is a sum of total variable cost which depends on the quantity of the goods produced and total fixed cost which is the cost incurred whether any good is produced or not.

TC = TVC + TFC

Explanation:

TFC is a horizontal line, which doesn't change with respect to output. TC and TVC curves shape are same and move in an identical way and difference between both of them is TFC.

In the beginning, there is an underutilisation of resources, so firms hire more and more labour. Due to higher productivity, output increases more than the increase in the cost. So, initially, the total cost curve rises at a decreasing rate. As firms keep hiring workers, our resources get over utilised, which reduces our labours productivity. This leads to an increase in the cost in increasing rate because of which our total cost curve becomes steeper in the end.

Rahul Sunny answered 1 year ago

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