The document defines key cost concepts used in production analysis: 1) Total cost includes all fixed and variable costs of production, while average costs refer to per-unit costs including average fixed cost, average variable cost, and average total cost. 2) Average total cost lies above the average variable cost curve because it includes both average variable and fixed costs. 3) Marginal cost refers to the increase in total cost from producing one additional unit of output and its curve is U-shaped, similar to the average variable cost curve, due to the law of variable proportions.

3. TOTAL COST(TC)
• Total cost is the total expenditure incurred by a firm on the factors of
production required for the production of a commodity.
• TC = TFC + TVC
• TFC remains same at all levels of output, the change in TC is entirely
due to TVC.

5. AVERAGE COSTS
• Average cost refers to the per unit costs, it explain the relationship
between cost and output. The 3ckinds of per unit costs are:
• 1. Average fixed cost (AFC): It refers to the per unit fixed cost of
production.
• 2. Average variable cost (AVC): It refers to the per unit variable cost of
production.
• 3. Average total cost(ATC) or Average cost(AC): I t refers to the per unit
total cost of production.
• AFC = TFC ÷ Q. ;. AVC = TVC ÷ Q ; AC = TC ÷ Q ; AC =
AFC + AVC

9. • AC curve will always lie above the AVC curve
because AC, at all levels of output includes both
AVC and AFC.
• When AVC is at its minimum point, AC is still
falling because of falling AFC.
• As the output increases, the gap between AC and
AVC curves decreases, but they never intersect
each other.
• It happens because the vertical distance between
them is AFC, which can never be zero.

10. MARGINAL COST
• Marginal cost refers to addition to total cost when one more unit of
output is produced.

12. • AVC curve is a U –shaped curve.
• As it initially falls and then remains constant for a while and finally, it starts increasing.
• AC is calculated by adding AFC and AVC. AC curve is also U –shaped.
• Mccurve is also U –shaped.
• The reason behind it’s U –shaped is the Law of Variable Proportion.