Class 11 Micro Economics Notes · CBSE

Short Run Costs (TFC, TVC, TC)

Short Run Costs — understanding Total Fixed Cost, Total Variable Cost and Total Cost in the short run. CBSE Class 11 Microeconomics notes with schedules and curves.

Last updated: 12 Sep 2026

Notes

Total Fixed Cost (TFC)

Fixed costs are costs that do not vary with the level of output. They are incurred on fixed factors of production like machinery, land, and building. TFC remains the same whether the output is large, small, or zero.

Also known as: Supplementary Cost, Overhead Cost, Indirect Cost, General Cost, Unavoidable Cost.

Suppose you start a furniture business of making wooden chairs. You hire a shop at a monthly rent of ₹40,000 and take a loan of ₹5,00,000 from ICICI Bank at 1% interest per month. Your monthly total fixed cost will be ₹45,000 (₹40,000 rent + ₹5,000 monthly interest = 1% of ₹5,00,000). You will have to pay ₹45,000 per month irrespective of the number of chairs produced.

Table 6.1: TFC is ₹12 at every level of output, including zero.
Output (in units)	TFC (₹)
0	12
1	12
2	12
3	12
4	12
5	12

Fig 6.1: TFC is a horizontal straight line — fixed cost remains ₹12 at all output levels.

Fixed costs like salary of a permanent manager, rent of telephone, etc. are paid irrespective of the level of output. Such costs are indivisible — even if the firm is producing zero or small output, these costs remain unchanged.

Total Variable Cost (TVC)

Variable costs are costs that vary directly with the level of output. They are incurred on variable factors like raw material, direct labour, and power. TVC rises with an increase in output and is zero when output is zero.

Also known as: Prime Cost, Direct Cost, Avoidable Cost.

Table 6.2: TVC is zero at zero output and rises as output increases.
Output (in units)	TVC (₹)
0	0
1	6
2	10
3	15
4	24
5	35

TVC curve is inversely S-shaped: it initially increases at a decreasing rate and later increases at an increasing rate.

Why? Initially, due to increasing returns to the variable factor, additional units add less to TVC. But as diminishing marginal product kicks in, each additional unit costs more to produce, causing TVC to rise faster.

Fig 6.2: TVC curve is inversely S-shaped — it rises initially at a decreasing rate, then at an increasing rate.

Fixed vs Variable — How to Classify

TVC vs TFC
Aspect	Total Fixed Cost (TFC)	Total Variable Cost (TVC)
Meaning	Costs that do not change with the level of output.	Costs that change directly with the level of output.
Period	Incurred in the short run when at least one factor is fixed.	Can be changed in the long run when all factors are variable.
At zero output	TFC is positive — it is incurred even at zero output.	TVC is zero — no variable cost is incurred at zero output.
Factors of production	Related to fixed factors (land, building, machinery).	Related to variable factors (labour, raw material, fuel).
Shape of the curve	Horizontal straight line parallel to the output axis.	Inversely S-shaped — initially increasing at a decreasing rate, then at an increasing rate.
Example	Rent of the factory, salary of permanent staff, interest on loan.	Wages of daily workers, cost of raw material, electricity charges.

Contract rule: If a cost is incurred under a contract that must be paid regardless of output level, it is a fixed cost. If the payment can be avoided by not producing, it is a variable cost.

Total Cost (TC)

Total cost is the sum of total fixed cost and total variable cost at each level of output. It represents the total expenditure incurred by a firm in producing a given level of output.

Total Cost

TC = TFC + TVC

A key point to note: change in TC is entirely due to change in TVC. Since TFC remains constant, any increase or decrease in TC at different output levels is solely because of the change in TVC.

Table 6.3: Total Cost is the sum of TFC and TVC at each output level.
Output (units)	TFC (₹)	TVC (₹)	TC (₹) = TFC + TVC
0	12	0	12
1	12	6	18
2	12	10	22
3	12	15	27
4	12	24	36
5	12	35	47

Relationship between TC, TFC and TVC

Fig 6.3: TC = TFC + TVC. TC and TVC are parallel curves separated by the constant TFC.

When output is zero, TC = TFC because TVC = 0. Even with no production, the firm still incurs fixed costs.

TVC increases with output, so TC also increases with output. The TC curve mirrors the shape of the TVC curve.

TC and TVC are equal at all levels when TFC = 0. In the absence of fixed costs, total cost equals total variable cost.

TC is always greater than TVC by the amount of TFC. The vertical distance between TC and TVC curves equals TFC.

TFC and TVC curves never intersect — they represent fundamentally different types of costs. TFC is a horizontal line; TVC is upward sloping.

Normal Profit is a Part of Total Cost

⭐ Normal profit is the minimum reward that must be paid to the entrepreneur to keep him/her supplying factor services to the firm. It is treated as a part of total cost because it is the cost of entrepreneur's own services.

Total cost includes: rent (for land), wages (for labour), interest (for capital), and normal profits(for entrepreneur's services).

If the entrepreneur does not earn at least normal profit, he/she will withdraw the factor services and the firm will shut down.

Key Takeaways

Total Fixed Cost (TFC) remains constant at all output levels, including zero output.
Total Variable Cost (TVC) varies directly with output — zero at zero output, rising as output increases.
Total Cost (TC) = TFC + TVC. Any change in TC is solely due to change in TVC.
TFC is also called Supplementary Cost, Overhead Cost, or Unavoidable Cost.
TVC is also called Prime Cost, Direct Cost, or Avoidable Cost.
Normal profit is a part of total cost — it is the imputed cost of the entrepreneur's own services.