Total Fixed, Total Variable, and Total Cost Curves

Total fixed cost (TFC) represents expenses a firm incurs regardless of output level, such as factory rent and machine maintenance. Graphically, TFC appears as a horizontal line parallel to the x-axis because these costs remain constant whether the firm produces zero units or maximum capacity. This unchanging nature distinguishes fixed costs from variable expenses.

Total variable cost (TVC) starts at zero when no production occurs and increases as output rises. Initially, TVC increases at a diminishing rate due to increasing marginal product of labor. Later, TVC rises at an accelerating rate when diminishing marginal product of labor sets in, as workers become idle waiting for limited machinery access, reducing overall productivity.

Total variable cost (TVC) includes all expenses that change with production levels, such as raw materials like wood and hourly wage labor payments. These costs directly correlate with output quantity—the more a firm produces, the higher its variable costs become, making them distinct from fixed expenses like rent.

Total cost (TC) equals the sum of total fixed cost (TFC) and total variable cost (TVC). The TC curve is parallel to the TVC curve because the vertical distance between them—the fixed cost—remains constant across all output levels. TC simply shifts the TVC curve upward by the amount of fixed costs incurred.

The total cost curve starts above the origin because it begins at the total fixed cost point. Even when production is zero, the firm still incurs fixed expenses like rent and machine maintenance. This starting point reflects costs the firm must pay regardless of whether any output is produced.

The TVC curve's shape reflects labor productivity changes. Initially, increasing marginal product of labor causes TVC to rise gently at a lower rate. As production expands, diminishing marginal product of labor emerges, causing TVC to rise steeply. Workers experience idle time waiting for limited machinery, reducing efficiency and increasing costs per unit produced.

Fixed costs remain constant regardless of output level, while variable costs change directly with production quantity. Fixed costs like rent and machine maintenance are unavoidable short-run expenses, whereas variable costs such as materials and labor scale with production volume. Understanding this distinction is essential for analyzing cost behavior and profitability.