Question
Show graphically that area under MC curve is equal to total variable cost (TVC).
Solution
Area under MC curve = TVC.
We have seen that MC is addition to the total variable cost when an additional unit is produced. This means that total variable cost (TVC) is the sum of marginal costs because total fixed costs remain the same in short period. This is proved in Fig. 3.9. Assuming output perfectly divisible, a hypothetical smooth MC curve is drawn in the adjoining figure. We know that TVC is simply the sum of marginal costs of number of units produced. Thus under the assumption of smooth marginal cost curve, total variable cost (TVC) is equal to the area under marginal cost curve. For instance at OQ units of output, TVC is equal to the shaded area OABQ in the diagram.
