Which equation correctly expresses total cost (TC)?

Which equation correctly expresses total cost (TC)?

• A. TC = FC + VC
• B. TC = FC - VC
• C. TC = VC/OUTPUT
• D. TC = FC * VC

Answer: (A)

Total cost is the sum of what you must pay regardless of production (fixed costs) and what you pay that depends on how much you produce (variable costs). Fixed costs stay the same no matter the output, while variable costs rise as you produce more. So at any level of output, the total cost is FC + VC. For example, if fixed costs are 100 and the variable costs at that output are 60, total cost is 160. Subtracting VC from FC would imply costs fall as production grows, which isn’t accurate. Dividing VC by output would give variable cost per unit, not total cost. Multiplying FC and VC mixes two quantities in a way that doesn’t represent total expenditure.

Total cost is the sum of what you must pay regardless of production (fixed costs) and what you pay that depends on how much you produce (variable costs). Fixed costs stay the same no matter the output, while variable costs rise as you produce more. So at any level of output, the total cost is FC + VC. For example, if fixed costs are 100 and the variable costs at that output are 60, total cost is 160. Subtracting VC from FC would imply costs fall as production grows, which isn’t accurate. Dividing VC by output would give variable cost per unit, not total cost. Multiplying FC and VC mixes two quantities in a way that doesn’t represent total expenditure.