Theory Of Costs

Step 1: Understanding the Concept: 
Cost theory identifies different components of production costs: 
- TFC (Total Fixed Cost): Costs that do not change with output (Total Cost at 0 output). 
- TVC (Total Variable Cost): Costs that vary with the level of output ( ). 
- AFC (Average Fixed Cost): . 
- AVC (Average Variable Cost): . 
Step 2: Key Formula or Approach: 
1. at output 0. 
2. . 
3. . 
4. . 
Step 3: Detailed Explanation: 
At Units = 0, . Since TVC is zero at zero output, . 
TFC remains constant at all levels of output. 
Calculations: 
- Units 0: , , ,  
- Units 1:  
- Units 2:  
- Units 3:  
- Units 4:  
Step 4: Final Answer: 

 

Step 1: Understanding the Concept: 
Marginal Cost (MC) is the addition to the Total Cost (TC) when one more unit of output is produced. 
Total Cost can be found by summing up the Marginal Costs of all units produced, assuming Total Fixed Cost (TFC) is zero or identifying it as the sum of variable costs. 
Step 2: Key Formula or Approach: 
The formula relating TC and MC is: 
 
Or, . 
Step 3: Detailed Explanation: 
Calculating TC for each unit: 
- For Unit 1: . 
- For Unit 2: . 
- For Unit 3: . 
- For Unit 4: . 
Step 4: Final Answer: 
The completed table is: