Question

Why do TC and TFC become equal at zero level of output?

Answer 1

• TC (Total Cost) and TFC (Total Fixed Cost) become equal at the zero level of output because at the zero level of output, the TVC (Total Variable Cost) is zero. No production means no use of variable inputs like raw materials, labour, etc.
• However, the TFC still remains, because fixed costs (like rent, salaries of permanent staff, interest on capital, etc.) have to be paid even if nothing is produced.
• So, at zero output: TC = TFC + TVC = TFC + 0 = TFC