Answer to Question #131117 in Microeconomics for sohrab

Question

Illustrate the link between the cost-minimization problem and total cost curve. What would happen to the total cost curve if the firm increases level of output?

Answer 1

Total cost (TC) is a set of fixed and variable costs of a firm.

 Total costs are a function of the output:

$$TC=FC+VC$$

The total cost is graphically obtained by summing the constant and variable cost curves.

Information about the level of costs allows you to build isocosts (lines of equal

costs), which are analogous to budget lines. The company minimizes costs in

the point of contact of the isocost with the isoquant at such a volume of production at which the ratio of marginal products of factors of production is equal to the ratio of prices for them.

In the long run, the firm chooses the optimal growth path that

is expressed as a line passing through the points of tangency of the isocost and isoquant.