total variable cost.
Total Fixed Cost (TFC)
Total fixed cost is the cost of the fixed factor(s). This does not vary with
the level of output; it is the same whether output is 1 unit or 1000 units.
Total fixed cost is also referred to as overhead cost. An example of a fixed
cost is the annual cost associated with renting a factory (or servicing the
debt incurred to build a factory). Whether the level of output increases or
decreases, this annual fixed cost does not change.
Total Variable Cost (TVC)
Total variable cost is the cost of the variable factors. It varies directly
with the level of output—that is, it rises when output rises and it falls
when output falls. Examples of variable costs are the cost of labour and
intermediate inputs that are used to produce output. As the level of
output increases or decreases, the amount of labour and intermediate
inputs required for production changes in the same direction.
Average Total Cost (ATC)
The total cost of producing any given number of units of output divided
by that number of units tells us the average total cost per unit of output.
We let Q be the total units of output (what we earlier referred to as total
product, TP). Since total cost is split into fixed and variable costs, we can
also divide average total cost into its fixed and variable components:
TC=TFC+TVC