EconomicsCBSE Class 11 · Production and Costs

Short-run Costs: TFC, TVC, TC, AFC, AVC, ATC and MC

Updated 17 October 2026 · Fact-checked

In the short run total cost TC = TFC + TVC; TFC is constant. AFC = TFC/Q, AVC = TVC/Q, ATC = TC/Q = AFC + AVC, and MC = change in TC (equal to change in TVC). AVC, ATC and MC are U-shaped because of diminishing returns; MC cuts AVC and ATC at their minimum points from below.

Notice MC falls then rises and cuts AVC and ATC from below exactly at their minimum points, while AFC keeps falling.

Illustration drawn for QuestionBuddy.

Understand Short-run Costs and Cost Curves

Costs in the short run. Fixed factors cause fixed costs.

Total fixed cost (TFC): does not change with output (rent of factory). A horizontal line; exists even at zero output.
Total variable cost (TVC): changes with output (raw materials, wages); zero at zero output.
Total cost (TC) = TFC + TVC.
Average fixed cost (AFC) = TFC ÷ Q: falls continuously (rectangular hyperbola).
Average variable cost (AVC) = TVC ÷ Q.
Average (total) cost (ATC/AC) = TC ÷ Q = AFC + AVC.
Marginal cost (MC) = ΔTC ÷ ΔQ = TCₙ − TCₙ₋₁ (also ΔTVC, since TFC is constant).

Worked schedule (TFC = Rs 20).
| Q | TVC | TC | MC | AFC | AVC | ATC |
| 1 | 10 | 30 | 10 | 20 | 10 | 30 |
| 2 | 18 | 38 | 8 | 10 | 9 | 19 |
| 3 | 24 | 44 | 6 | 6.67 | 8 | 14.67 |
| 4 | 32 | 52 | 8 | 5 | 8 | 13 |
| 5 | 42 | 62 | 10 | 4 | 8.4 | 12.4 |
| 6 | 56 | 76 | 14 | 3.33 | 9.33 | 12.67 |
| 7 | 76 | 96 | 20 | 2.86 | 10.86 | 13.71 |
At Q = 0, TC = TFC = 20. Check identities: ATC = AFC + AVC (e.g. 12.4 = 4 + 8.4); ΣMC for 1 to 5 = 10 + 8 + 6 + 8 + 10 = 42 = TVC(5).

Shapes. TFC horizontal; TVC starts at origin, rises at a decreasing rate first, then increasing; TC parallel to TVC, starting at TFC. MC, AVC and ATC are U-shaped because of the law of variable proportions: initially increasing returns lower costs, then diminishing returns raise them. AFC falls as output rises.

Relations. (1) MC cuts AVC and ATC at their minimum points from below: when MC < average, the average falls; when MC > average, it rises. In the table AVC is lowest (8) at Q = 3 to 4 where MC(4) = 8; ATC is lowest at Q = 5 (12.4), with MC (10) below it and MC (14) at Q = 6 above ATC (12.67). (2) ATC is always above AVC by AFC; the gap narrows as Q rises. (3) MC reaches its minimum before AVC and ATC do.

Draw and label: the cost curves with MC cutting AVC and ATC at their minima.

Short-run Costs and Cost Curves: key facts

Total cost: TC = TFC + TVC; TFC constant
Averages: AFC = TFC/Q
AVC = TVC/Q
ATC = TC/Q = AFC + AVC; Per unit
Marginal cost: MC = TC_n - TC_(n-1) = TVC_n - TVC_(n-1); Extra cost of one more unit
Relation: MC cuts AVC and ATC at their minima, from below; U-shaped curves

How to answer Short-run Costs and Cost Curves questions

Questions give TVC or TC and ask for the other columns or relations.

1Compute TC = TFC + TVC (with TFC = TC at Q = 0).
2MC = difference of consecutive TC (or TVC).
3AFC, AVC, ATC by dividing by Q; verify ATC = AFC + AVC.
4Locate the minimum AVC and ATC and check MC at that point.
5Explain U-shape with the law of variable proportions.

Short-run Costs and Cost Curves in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Bakery oven

Suppose a bakery pays Rs 20 daily rent for its oven regardless of how many loaves it bakes and pays Rs 10 for the first batch of flour and labour.

What are TFC, TVC and TC for the first batch, and ATC?

Try it first, then show the solutionSolution

TFC = 20 (rent).
TVC = 10 and TC = 30.
ATC = 30 / 1 = 30 per batch (AFC 20 + AVC 10).

Answer: TFC 20; TVC 10; TC 30; ATC 30.

Memory hook: Fixed rent never changes.

Tricks to remember Short-run Costs and Cost Curves

Short memory aids. Say each one aloud once, then use it on a question the same day.

TC = F + V
Total cost is fixed plus variable.
Use it when: TC
MC cuts at the bottom
MC meets AVC and ATC at their lowest points.
Use it when: Relation
AFC falls always
AFC keeps falling as output rises.
Use it when: AFC

Short-run Costs and Cost Curves: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Basic costs · 3 marks · Short answerBoard level

TFC is Rs 20 and TVC for Q = 1, 2, 3 is 10, 18, 24. Find TC, MC and AVC.

Try it first, then show the solutionSolution

TC = 30, 38, 44 (1 mark).
MC = 10, 8, 6 (from TC at 0 = 20) (1 mark).
AVC = 10, 9, 8 (1 mark).

Answer: TC 30,38,44; MC 10,8,6; AVC 10,9,8.

Example 2: Complete the table · 5 marks · Long answerHarder board level

From TVC = 10, 18, 24, 32, 42, 56, 76 (Q = 1 to 7) and TFC = 20, find ATC for each and the output with minimum ATC.

Try it first, then show the solutionSolution

TC = 30, 38, 44, 52, 62, 76, 96 (1 mark).
ATC = 30, 19, 14.67, 13, 12.4, 12.67, 13.71 (1 mark).
Minimum ATC = 12.4 at Q = 5 (1 mark).
MC at Q = 5 is 10, below ATC; MC at Q = 6 is 14, above ATC (1 mark).
So MC cuts ATC from below near its minimum (1 mark).

Answer: ATC min 12.4 at Q = 5.

Example 3: AFC and AVC · 3 marks · Short answerHarder board level

Show that ATC = AFC + AVC at Q = 5 and explain why the gap between ATC and AVC narrows.

Try it first, then show the solutionSolution

AFC = 20/5 = 4; AVC = 42/5 = 8.4 (1 mark).
ATC = 62/5 = 12.4 = 4 + 8.4 (1 mark).
The gap is AFC, which falls as output rises (1 mark).

Answer: 12.4 = 4 + 8.4; AFC shrinks.

Example 4: MC and averages · 3 marks · Short answerHarder board level

Explain why MC cuts AVC at its minimum point using the table.

Try it first, then show the solutionSolution

AVC falls from 10 to 9 to 8 while MC (8, 6) is below it (1 mark).
At Q = 4, AVC = 8 = MC (1 mark).
After that MC (10, 14) is above AVC, so AVC rises (8.4, 9.33) (1 mark).

Answer: Average falls when MC below, rises when above.

Example 5: Interpreting the changes · 5 marks · Long answerHOTS / competency

Suppose the rent (TFC) rises from Rs 20 to Rs 30 with the same TVC. Show the effect on TC, MC, ATC at Q = 5 and on the minimum point of AVC, and explain.

Try it first, then show the solutionSolution

TC(5) = 30 + 42 = 72 (1 mark).
MC is unchanged: MC(5) = TVC(5) - TVC(4) = 10 (1 mark).
ATC(5) = 72/5 = 14.4, higher by 2 (AFC rises from 4 to 6) (1 mark).
AVC is unchanged, so its minimum stays at 8 (1 mark).
Fixed cost affects only TC, AFC and ATC, not MC or AVC (1 mark).

Answer: TC 72; MC 10; ATC 14.4; AVC unchanged.

Where students lose marks in Short-run Costs and Cost Curves

The slips examiners see most often, and what to write instead.

Mistake: MC from TFC
Fixed cost added.
Wrong working
MC includes TFC.
Right working
MC = change in TC (TFC drops out).
Do this: Fixed cost cancels.
Usually costs: 1 mark.
Mistake: AFC rising
Shape.
Wrong working
AFC is U-shaped.
Right working
AFC falls continuously.
Do this: Hyperbola.
Usually costs: 1 mark.
Mistake: MC cuts from above
Direction.
Wrong working
MC cuts AVC from above.
Right working
MC cuts AVC from below at minimum AVC.
Do this: From below.
Usually costs: 1 mark.

Exam tips

Make a full table.
Verify ATC = AFC + AVC.
State TC at Q = 0 equals TFC.
Explain the U-shape with returns to a factor.

Practice questions on Short-run Costs and Cost Curves

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
The cost curve that is a horizontal straight line in the short run is
(a) TVC (b) TFC (c) MC (d) AVC
Hint
Constant.
Answer
(b).
Q2 · 1 mark · Assertion-reasonHarder board level
Assertion (A): AFC falls continuously as output increases.
Reason (R): TFC is spread over more units.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.
Hint
Constant numerator.
Answer
(a).
Q3 · 2 marks · Very short answerBoard level
If TC of 4 units is Rs 52 and of 5 units is Rs 62, find the MC of the 5th unit and the ATC at 5 units.
Hint
Difference.
Answer
MC(5) = 62 - 52 = 10; ATC(5) = 62/5 = 12.4.
Q4 · 4 marks · Case-basedHarder board level
Read and answer.
Suppose TFC = Rs 50 and TVC for 1 to 4 units is 20, 36, 48, 64.
(a) Find TC. (1)
(b) Find MC. (1)
(c) Find ATC at 4 units. (2)
Hint
Add and difference.
Answer
(a) TC = 70, 86, 98, 114. (b) MC = 20, 16, 12, 16. (c) ATC = 114/4 = 28.5.
Q5 · 3 marks · Short answerHOTS / competency
Suppose AVC at Q = 6 is Rs 12 and is falling, and MC at Q = 6 is Rs 9. How does MC at Q = 6 compare with AVC, and what would be the effect on AVC if MC at Q = 7 were Rs 15?
Hint
Compare MC and AVC.
Answer
Since AVC is falling, MC (Rs 9) is below AVC (Rs 12). If MC at Q = 7 is Rs 15, it is above AVC (Rs 12), so AVC will start rising. Check: TVC(6) = 6 × 12 = 72, TVC(7) = 87, AVC(7) = 87/7 ≈ 12.43, which is more than 12.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.TC formula?Show answer
TFC + TVC.
2.MC formula?Show answer
Change in TC.
3.AFC shape?Show answer
Falls continuously.
4.MC cuts AVC at?Show answer
Its minimum.
5.TC at zero output?Show answer
Equal to TFC.
6.ATC equals?Show answer
AFC + AVC.

Short-run Costs and Cost Curves: frequently asked questions

What is TFC?

Cost that does not vary with output.

What is MC?

Extra cost of one more unit.

Why is ATC U-shaped?

Returns to a factor change.

Is AVC above ATC?

No, ATC is above AVC.

What is the short run?

A period with some fixed factors.