class 12 economics

Total cost 2:08 PM

Friday, November 20, 2020

Page 76 Q 1 to 7 do in your note
What is difference between Fixed and variable cost
Page 60 table 2.3
What do you mean by short run total cost ? Illustrate with help of table and figure
or Explain the nature of TVC, TFC & TC with the help of table and diagram
Cost
The amount of money spend in producing goods and service is called cost .
Short run
Short run is a time period in which some factors of production can be change some cannot change
Short run total cost
TVC,TFC,TC are short run total costs
Total fixed curve ( TFC) :the total amount of cost incurred on the purchase of fixed factors in short run
is called TFC
Total variable cost(TVC):the total amount of cost incurred on the purchase of variables factors in short
run is called TVC.
Total Cost (TC) : the sum of TFC and TVC is TC ie TC=TVC+TFC
The relationship between the total , fixed and variable cos is illustrated with the aid of following table.

output TFC TVC Tc( TFC+ TVC)

0 20 0 20

1 20 10 30

2 20 18 38

3 20 24 44

4 20 28 48

5 20 36 56

6 20 48 58

7 20 64 84

Table:
in the above table , when output is zero the total cost is Rs 20 . If output increase both cost TC and
TVC increase . Both the cost increase at first in increasing rate then decreasing rate and then
increasing in increasing rate . It shows the the nature of TC is governed by law of variable proportion.
It can be explain with the help of following figure

cost and revenue Page 1

output
fig: total cost curve
in the figure costs are measured on y -axis and output is measured in the X-axis. TC,TFC,TVC are the
total cost curve, total fixed curve total variable cost curve respectively.
TFC is parallel to the output axis i.e. x-axis because the fixed cost does not changed with change in
output level. TVC begins from the origin because total variable cost is zero at zero level of output.
TVC rapidly increase in the beginning and slowly in next stage and rapidly at high level of output. So,
TVC is inversed 'S' shape .Inversed 'S' shape of the TVC curve shows the application of law of variable
proportion. When marginal product and average product are increasing total cost is decreasing .
TC curve is upward sloping and same shaped as the TVC because TC=TFC+TVC. So, TC has positive
intercept. At higher level of output TC and TVC are nearer and nearer but never touch due to TFC.

cost and revenue Page 2

per unit cost

Friday, November 20, 2020 6:47 PM

Page 76 Q 1 to 7 do in your note

Explain the nature and relationship of average variable cost ,average cost
and marginal cost in short run or
Explain per unit cost in short run
Cost
The amount of money spend in producing goods and service is called cost .
Short run
Short run is a time period in which some factors of production can be
change some cannot change.

AVC: average variable cost ( AVC) is the per unit cost of variable factor of a
production.
So, AVC=

AC : Average cost is the per unit cost of a production
So, AC=

MC: marginal cost is the additional cost on total cost added by one more
unit of production .
So, MC=

low level of output will be relatively inefficient due to inefficient and
under use of fixed factor of production .so, per unit cost is high . As the
production increase, due to specialization and proper utilization of factor
of production per unit cost decline . As more and more variable factors are
added it finished the all economizes and per unit cost will increase. Hence
AVC,AC,MC are "U ' shaped and it shows the application of law of variable
proportion in short run. AC=AVC+AFC, so AC is above the AVC.
the relationship between the AC,MC,AVC is explained with the help of the
following figure.

cost and revenue Page 1

Figure page 69 figure 2.11 figure

fig : the relationship between short run AVC,AC&MC
in the figure output an costs are shown on x-axis and Y axis respectively.
The curve denoted by AC &AVC and MC denotes the average cost, average
variable
cost , marginal cost respectively .MC is minimum at level of output Q1
. AVC is minimum at level of output Q2 .AC is minimum at
The relation and nature of AC MC, AVC are explained in the following points
• The rate of falling and rising of MC is greater than AC and AVC.
• Minimum points of MC appears faster than AC and AVC.
• MC cuts AVC fist and then AC
• MC cuts AVC and AC at their minimum points
• When AC is falling AC > MC.
• When AC is rising AC< MC
• AC and AVC becomes close rand closer for higher level of output

but never intersect due to AFC
Derive long rung Average cost curve (LAC) with the help of the short run
Average cost curve
Long run is the time interval in which all factors of productions can be
change. Firm can work out with planning . In long run ,all factors of production

cost and revenue Page 2

change. Firm can work out with planning . In long run ,all factors of production
are variable .
LAC is the per unit cost .

Long run goal can be achieve by achieving the short run goals. LAC can be drawn with the
help of the short run cost .LAC can be drawn by enveloping the all the short run costs
curves. Due to the returns to scale of production ,LAC is flatter U shaped .
It can be explain with the help of the following figure

Figure page 72 upper part

In the above figure quantity is measured in the X-axis and cost is measured in the Y-

axis .SAC1 ,SAC2 ,SAC3 are the different short run cost of the different plant size.

When LAC is falling it is tangent at falling part of SAC . When LAC is minimum it is tangent

to the minimum of the SAC .When LAC is rising it is tangent to the rising part of

SAC .So ,LAC is flatter U shaped

note marginal concept figure

exercise Q 4 and 5 page 80

cost and revenue Page 3