Question
Why is the TVC an inverse S-shaped curve?
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Answer
- The short run variable cost function (TVC) is derived from the short run production function(total Product).
- There are two phases on which shape of total variable cost depends.
- In the first phase, TVC increase at a diminishing rate, i.e., every additional unit of output produced leads to lower cost of production. This is because of proper utilization of fixed factor by employing more units of variable factor, specialization and division of labour.
- In the second phase, TVC increase at a increasing rate, i.e., every additional unit of output produced leads to higher cost of production. This is because of non-optimal combination of variable factor with the fixed factor.
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