5. Production, Costs & Revenue - TC

Question 1

What is the shape of the total fixed cost curve and why?

Answer 1

It is a perfectly horizontal line and this is because fixed costs do not vary at all with output

Question 2

What is the shape of the total variable cost curve and why?

Answer 2

The curve is;Steeper to begin with - initial cost of hiring extra workersMore horizontal in the middle - as the workers provide productivity gainsSteeper at the end - as the law of diminishing returns causes cost to rise relative to increases in output

Question 3

What is the shape of the total cost curve and why?

Answer 3

The TC curve follows exactly the same shape as the TVC curve except it’s slightly higher up. TFC is perfectly horizontal, TC is total variable cost plus total fixed cost so the total cost curve will be an equal distance above TVC as TFC is above the x axis.