Question

what is the difference between fixed costs and variable costs? explain the shape of the total variable cost curve and explain why and how the total cost and total variable cost curves differ.

answer with your own word ( 200 words )

Answer 1

Differences between fixed and variable costs are as follows:
1) Fixed costs are those costs that does not change with the change in units of output where variable costs are those costs that vary with the change in output production.
2) Fixed costs are still going to incurred even with zero production but variable costs are incurred with the activity of production.
3) Fixed costs include rent of the building, cost incurred in wear and tear of machinery (depreciation) and insurance etc whereas variable costs include salaries of employees and cost of raw materials etc.

The shape of total variable cost curve
The total variable cost curve originates from the origin signifying costs incurred due to increase in production. It is an upward sloping curve showing increasing marginal returns in the beginning ( small quantity of output ) and declining marginal returns as more quantities are produced by just varying the variable factors.


The total cost curve and total variable cost curve differ on account that total cost includes both total variable costs and total fixed costs. Although the shape of the two is similar but where total variable cost originates from origin, the total cost originates from the point of total fixed costs suggesting that even with no production, some fixed costs are to be incurred.

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