Total Fixed, Total Variable, and Total Cost Curves

Consider a small firm making tables. In the short run, it incurs fixed costs, including factory rent and maintenance of machines. The sum of these costs is referred to as total fixed cost or TFC.

Graphically, TFC is a horizontal line parallel to the x-axis, as it remains constant regardless of output.

Variable costs include payments for wood and daily wage labor. The sum of these costs is the total variable cost or TVC.

In the absence of production, the TVC is zero. As manufacturing starts, the TVC increases because costs for wood and labor are incurred. Due to the increasing marginal product of labor that exists over the initial, early range of output, the TVC rises at a diminishing rate. However, later the TVC rises at an increasing rate due to the eventual onset of diminishing marginal product of labor. In this range of output, the workers may be idle, waiting for access to limited machinery, resulting in lower productivity.

The total cost or TC is the summation of TFC and TVC. TC is similar to TVC, and these are parallel. However, TC starts from the total fixed cost point since these are costs incurred regardless of output.