Total cost equals?

• A. The sum of fixed costs only
• B. The sum of fixed and variable costs
• C. The sum of variable costs and marginal costs
• D. The average cost multiplied by quantity

Answer: (B)

In cost analysis, total cost is the sum of fixed costs and variable costs. Fixed costs are incurred regardless of output, while variable costs change with how much you produce. So the total cost can be written as TC = FC + VC. Marginal cost is the cost of producing one more unit, which relates to how TC changes with quantity rather than being an added component of TC itself. While average cost times quantity can recover total cost if you’re using AC = TC/Q, the standard and direct decomposition students should rely on is FC plus VC.