What are the total fixed cost, total variable cost and total cost of a firm? How are they related?
Total Fixed Cost (TFC) is the cost a firm incurs to employ fixed inputs. It remains constant for all levels of production and is independent of the amount of output produced. Total Variable Cost (TVC) is the cost incurred to employ variable inputs. To increase production, a firm must employ more variable inputs, causing TVC to increase as output increases. Total Cost (TC) is the sum of total fixed cost and total variable cost.
These costs are related by the equation TC = TVC + TFC. At zero output, TVC is zero, so TC equals TFC. While TFC remains fixed regardless of output, both TVC and TC increase as production rises.
Explanation
The answer draws directly from the 'Short Run Costs' section and the definitions provided in the context. It defines TFC as constant and independent of output, TVC as dependent on variable inputs and output, and TC as the sum of the two. The relationship is explicitly stated in the text as TC = TVC + TFC.