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19. Explain the behaviour of TV C curve |
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Answer» The total variable cost is the cost that varies with the change in the level of output and hence it increases as output increases and decreases as output decreases. Initially tvc curve increases at diminishing rate-This is because in the initial production levels firm is able to produce an extra unit of output at low cost i.e though variable cost increases but it increases at diminishing rate with subsequent output levels. The reason being that the firm is able to tap the availabe machinery and other inputs efficiently. ( in order to produce output, firm needs to employ labor and initially its easy to employ extra labor thus improving efficiency) Later TVC increases at increasing rate-Now as firm employs new labor to produce more output due to this the workplace becomes crowded and it becomes difficult to work. Thus efficiency reduces and to produce extra ouput the cost increases but at an increasing rate. another anser |
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