Fixed cost do not change the shape of the total lost curve. (Yes or no) explain why.
- I would say the answer is yes but i'm not entierly sure as so why it would change the shape. If answered could you give and example to help me understand why?
The correct answer is no. Fixed costs can indeed change the shape of the total cost curve, which, in turn, affects the shape of the total cost curve.
Fixed costs are expenses that do not vary with the level of production or sales. They typically include items like rent, insurance, and salaries. Since fixed costs remain constant regardless of the level of output, they have no impact on the marginal cost (the additional cost of producing one more unit) or the variable cost (costs that change with production levels).
However, fixed costs do affect the average fixed cost (AFC). AFC is calculated by dividing total fixed costs by the quantity of output. As the level of output increases, the fixed costs are spread out over more units, leading to a decrease in the AFC. This is because the same fixed cost is being divided by a larger quantity.
The shape of the total cost curve is influenced by the shape of the total variable cost (TVC) curve, which is the sum of all the variable costs associated with producing different levels of output. Since fixed costs do not change the TVC, they do not directly alter the shape of the TVC curve. Consequently, they do not change the shape of the total cost curve either.
To illustrate this concept, let's consider a production scenario. Suppose a factory has fixed costs of $10,000 per month and produces two products: A and B. The total variable costs for each product are as follows:
Product A:
- 100 units: $500
- 200 units: $1,000
- 300 units: $1,500
Product B:
- 100 units: $300
- 200 units: $600
- 300 units: $900
The total cost for each level of output is calculated by adding the fixed costs to the variable costs. The shape of the total cost curve reflects the sum of these costs at different output levels.
In this example, the fixed costs of $10,000 remain constant, and the variable costs change as the level of output increases. This results in different shapes for the total cost curve. Hence, fixed costs do affect the shape of the total cost curve.