Shapes of the Short Run Curves

Shape of Total Fixed Cost (TFC) Curve, Total Variable Cost (TVC) Curve and Total Cost (TC) Curve

In previous sessions, we discussed in detail all types of the Short Run Costs for a Firm. The cost incurred by the firm to employ fixed or constant factors of production or inputs is known as Total Fixed Cost (TFC). The cost incurred by the firm to employ variable factors of production or inputs is known as Total Variable Cost (TVC). The Short Run for a firm is a time period in which at least few or some factors of production or inputs remains fixed or constant irrespective of the level of output. As soon as all the factors of production for a firm becomes variable i.e., as soon as the firm is able to vary all factors of production in order to achieve desired level of production. And in the short run, the firm cannot vary the fixed or constant costs and hence firm increases the variable factors of production in order to increase the level of output. And the sum of Total Fixed Cost and Total Variable Cost is known as Total Cost. With the increase in the variable cost in the short run, with fixed cost being constant, the total cost increases. Hence in the short run, as the level of output increases, the Total Variable Cost (TVC) as well as the Total Cost (TC) increases.

The below mentioned table illustrates the various Short Run Cost curves for a firm.

The above table shows all the Short Run costs for a firm. The Total Fixed Cost (TFC) as can be seen in the above table remains fixed throughout output levels from 0 to 10, remains fixed or constant at 40. The Total Variable Cost (TVC) keeps on increasing with the level of output. The Total Cost (TC) which is sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC), also increases with the level of output thanks to continuous rise of Total Variable Cost (TVC). The fifth column shows the Average Fixed Cost (AFC) which is derived by simply dividing the Total Cost by the output. As the level of output increases, the Average Fixed Cost (AFC) keeps on decreasing as the denominator i.e., output keeps on expanding thus fixed cost getting spread over more and more units. The sixth column shows the Average Variable Cost (AVC) which is derived by dividing the Total Variable Cost (TVC) by output. The seventh column shows Short Run Average Cost (SAC) which can be derived by dividing Total Cost (TC) by the output. The other way to derive the Short Run Average Cost (SAC) is simply by adding the Average Fixed Cost (AFC) and Average Variable Cost (AVC). And the last column shows the Short Run Marginal Cost (SMC) which is derived by dividing Change in Total Cost by Change in output.

Shape of TFC Curve, TVC Curve and TC Curve

Let us understand the above mentioned Short Run cost with the help of graphical representation. On the graph, the output is presented on the x-axis and the costs are presented on the y-axis.

As we discussed at the beginning of session, that in the short run, in order to increase the production or output, a firm increases the employment of the variable inputs which leads to a rise in the Total Variable Costs (TVC) which further leads to increase in the Total Cost (TC). Whereas the Total Fixed Cost remains constant or fixed for all level of production and doesn’t change with the change in output or production. Hence, as the output increases, the Total Variable Cost (TVC) as well as Total Cost (TC) increases.

The above figure illustrates the Total Fixed Cost (TFC), Total Variable Cost (TVC) as well as Total Cost (TC). The output is presented on X-axis and the cost is presented on Y-axis.

The Total Fixed Cost (TFC) as discussed remains fixed irrespective of level of output. In the above graph, the total fixed cost is C1 on the Y-axis and it does not change as the output increases as we can see in the graph. Therefore, the curve of Total Fixed Cost (TFC) is a horizontal straight line meeting the y-axis representing cost at C1.

Similarly, the Total Variable Cost (TVC) is represented on the graph. At output q, the total variable cost is C2. And in the similar manner, the Total Cost (TC) at output q, is C3.

Thus in the above graph, we can see that even as the output keeps increasing, the total fixed cost remains same indifferent of output.

We know that Total Cost = Total Fixed Cost + Total Variable Cost

Thus we can see the Total Fixed Cost is simply a horizontal line.

Now as the firm increases the output by employing more variable factors of production, the total variable cost increases. Thus we can see in the above graph the Total Variable Cost curve keeps increasing as the output increases.

And finally as fixed cost is needed to be added to the variable cost to get the total cost, the total cost curve follows the total variable cost throughout with additional margin of total fixed cost.

Conclusion

Thus in this session, we discussed in detail regarding few of the Short Run cost curves namely Total Fixed Cost (TFC), Total Variable Cost (TVC) and Total Cost (TC). We started with discussing what is short run as a time period for a firm. Then we discussed the meaning of Total Fixed Cost (TFC), Total Variable Cost (TVC) and Total Cost (TC). We also learned the formulas to derive Total Fixed Cost (TFC), Total Variable Cost (TVC) and Total Cost (TC). And finally we plotted all of the above costs i.e., Total Fixed Cost (TFC), Total Variable Cost (TVC) and Total Cost (TC) in a graphical presentation and derived various cost curves for the same, with TFC curve being a horizontal line and the TVC and TC increasing with increase in the level of output of the firm.