Answer to Question #158070 in Microeconomics for Towseef Ahmad

Question

1. (a) Illustrate the relation between Total Cost (TC), Total Fixed Cost (TFC) and Total Variable  Cost (TVC) curves. Also, comment upon the shapes of these curves

Answer 1

Let's draw the Total Cost (TC), Total Fixed Cost (TFC) and Total Variable Cost (TVC) curves:

Since total fixed cost is fixed and the same at all output levels, the TFC curve is the horizontal line parallel to the $x$-axis (output). The total variable cost slopes up at an accelerating rate reflecting the law of diminishing marginal returns. The TVC curve has S-shape. The total cost can be found by adding total fixed and total variable costs. Therefore, the position of the total cost curve reflects the amount of fixed costs; its gradient reflects variable costs and TC curve also has S-shape.