Total variable cost (TVC) reflects diminishing marginal productivity - as more variable input is used, output and variable cost will increase.
Total fixed cost (TFC) is constant regardless of how many units of output are being produced. Total Cost is a combination of cost of fixed inputs and the cost of variable inputs. When assuming perfect competition, Py is constant regardless of level of output (even though this assumption can be challenged).TR is illustrated as a straight line if perfect competition is assumed Now, the axes of the graphs are dollars and quantity of output. Total Revenue (TR): same as VTP they are the same - but when illustrated, revenue is measured in term of the units of output, rather than units of input. Accordingly, this page describes an analysis whereby profit can be calculated.Īlthough the definition is obvious, it is helpful to restate that profit is the difference between total revenue (TR) and total cost (TC). However, the discussion of MVP and MIC on a previous page does not provide enough information to determine profitability. The discussion of production theory is based on the premise that the business manager will decide to pursue strategies and practices that maximize profit. This page defines profit, revenue, and cost, including total cost, average cost and marginal cost.
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