Movement of Total Variable Cost

We have learned that the semi variable cost always decreases as the production increases, whereas the total variable cost first diminishes (due to growing yield) and then increases (due to decreasing yield). Given that the total costs are the sum of the fixed costs and variable costs, the total variable cost is obviously the sum of the total variable cost and the semi variable cost.

Total variable cost is defined as the total costs divided by the amount (TC/q). if you were to look at this in an equation you would obtain the following:

TC/q = FC/q + VC/q

This equation can be made a bit simpler by noticing that TVC equals TC/q, SVC equals FC/q and AVC equals VC/q. So this means:

TVC = SVC + AVC

In this equation you can clearly see that the total variable cost depends on how the semi variable cost interacts with the fixed variable cost and the average variable cost. There are two important things to keep in mind here:

Average total cost must always be greater then the semi variable cost, because it has to add up to average fixed cost.

Average total cost reaches its minimum at a higher product level than semi variable cost.

Beginner Money Investing Increasing and Decreasing Yield Why Decreasing Yield Occurs Semi Variable Costs Movement of Total Variable Cost