Total Cost Curves (TC, TVC, TFC) Year 2 Micro (4)
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4 Terms
Total Fixed Cost
They are constant and do not vary with output. (horizontal line).
Total Variable Cost
Shaped by the law of diminishing marginal returns. The (1) part is just the initial investment to get more workers in due to the labour we pay, initial cost to get workers. The (2) when horizontal that’s the productivity gains as output is increasing more than the cost because (underutilised capital and specialisation). The (3) where diminishing returns kicks in, (over utilisation of capital, fixed factors become a constraint) and workers lose productivity and costs increases quicker than output.
Total Cost
TC = TFC + TVC, exactly like TVC but higher. The vertical difference between two curves represents the TFC levels.
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