Total cost

(noun)

Total cost (TC) describes the total economic cost of production and is made up of variable costs, which vary according to the quantity of a good produced and include inputs such as labor and raw materials, plus fixed costs, which are independent of the quantity of a good produced and include inputs (capital) that cannot be varied in the short term, such as buildings and machinery.

Related Terms

Examples of Total cost in the following topics:

  • Average and Marginal Cost

    • Marginal cost is the change in total cost when another unit is produced; average cost is the total cost divided by the number of goods produced.
    • In economics, marginal cost is the change in the total cost when the quantity produced changes by one unit.
    • The total cost for making two pairs of shoes is $40.
    • The average cost is the total cost divided by the number of goods produced.
    • This graph is a cost curve that shows the average total cost, marginal cost, and marginal revenue.

  • The Supply Curve in Perfect Competition

    • The total revenue-total cost perspective and the marginal revenue-marginal cost perspective are used to find profit maximizing quantities.
    • In economics, a cost curve is a graph that shows the costs of production as a function of total quantity produced.
    • The various types of cost curves include total, average, marginal curves.
    • There are two ways in which cost curves can be used to find profit maximizing quantities: the total revenue-total cost perspective and the marginal revenue-marginal cost perspective.
    • The total revenue-total cost perspective recognizes that profit is equal to the total revenue (TR) minus the total cost (TC).

  • Types of Costs

    • In economics, the total cost (TC) is the total economic cost of production.
    • It consists of variable costs and fixed costs.
    • Total cost is the total opportunity cost of each factor of production as part of its fixed or variable costs .
    • Economic cost is the sum of all the variable and fixed costs (also called accounting cost) plus opportunity costs.
    • The sum of the two equal the total cost.

  • Natural Monopolies

    • The total cost of the natural monopoly is lower than the sum of the total costs of two firms producing the same quantity .
    • Along with this, the average cost of production decreases and then increases.
    • In contrast, a natural monopoly will have a marginal cost that is constant or declining, and an average total cost that drops as the quantity of output increases.
    • Therefore, in industries with large initial investment requirements, average total costs decline as output increases.
    • The total cost of the natural monopoly's production is lower than the sum of the total costs of two firms producing the same quantity.

  • Costs and Production in the Short-Run

    • FC is total fixed cost and may be referred to as TFC.
    • AFC is fixed cost per Q.
    • Sometimes VC is called total variable cost (TVC).
    • Total Cost (TC) is the sum of the FC and VC.
    • Average Total Cost (AC or ATC) is the total cost per unit of output.

  • Economic Costs

    • So, the economic cost of college is the accounting cost plus the opportunity cost.
    • Total cost (TC): total cost equals total fixed cost plus total variable costs (TC = TFC + TVC) .
    • Average cost (AC): total costs divided by output (AC = TFC/q + TVC/q).
    • Marginal cost (MC): the change in the total cost when the quantity produced changes by one unit.
    • Cost curves: a graph of the costs of production as a function of total quantity produced.

  • Economic Order Quantity Technique

    • Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs.
    • The required parameters to the solution are the total demand for the year, the purchase cost for each item, the fixed cost to place the order, and the storage cost for each item per year.
    • Total Cost = purchase cost + ordering cost + holding cost
    • To determine the minimum point of the total cost curve, partially differentiate the total cost with respect to Q (assume all other variables are constant) and set to 0:
    • Equation to determine the minimum point of the total cost curve.

  • Difference Between Economic and Accounting Profit

    • Explicit costs are costs that involve direct monetary payment.
    • In contrast, implicit costs are the opportunity costs of factors of production that a producer already owns.
    • Accounting profit is the difference between total monetary revenue and total monetary costs, and is computed by using generally accepted accounting principles (GAAP).
    • These consist of the explicit costs a firm has to maintain production (for example, wages, rent, and material costs).
    • Economic profit is the difference between total monetary revenue and total costs, but total costs include both explicit and implicit costs.

  • Average Cost Method

    • Note that we compute weighted average cost per unit by dividing the cost of units available for sale, $690, by the total number of units available for sale, 80.
    • The average cost is computed by dividing the total cost of goods available for sale by the total units available for sale.
    • There are two commonly used average cost methods: Simple Weighted Average Cost method and Moving-Average Cost method.
    • Each time, purchase costs are added to Beginning Inventory Cost to get Cost of Current Inventory.
    • Under periodic inventory procedure, a company determines the average cost at the end of the accounting period by dividing the total units purchased plus those in beginning inventory into total cost of goods available for sale.

  • Cost-Based Pricing

    • Cost-based pricing is the act of pricing based on what it costs a company to make a product.
    • Cost-based pricing is the act of pricing based on what it costs a company to make a product.
    • Price = (1+ Percent Markup)(Unit Variable Cost + Average FixedCost) .
    • The bicycle divi­sion, which management thought of as Diamond's core business, gen­erated just 10% of total revenues and barely covered its own direct labor and insurance costs.
    • Cost-based pricing is misplaced in industries where there are high fixed costs and near-zero marginal costs.