By definition, variable cost (VC) is related to total costs (TC) and fixed costs (FC) by the equation?
Answer Details
The correct equation that relates variable cost (VC) to total cost (TC) and fixed cost (FC) is:
VC = TC - FC
This means that variable cost is the difference between total cost and fixed cost. In other words, it is the cost that varies depending on the level of production or output. Fixed cost, on the other hand, remains constant regardless of the level of output.
For example, let's say a company has a total cost of $10,000 to produce 100 units of a product. Of this cost, $5,000 is fixed cost (such as rent or salaries), and $5,000 is variable cost (such as raw materials and labor). If the company decides to increase production to 200 units, the variable cost will increase, but the fixed cost will remain the same. The new total cost will be $15,000 ($5,000 fixed cost + $10,000 variable cost).
Therefore, the equation VC = TC - FC helps to understand how costs change with changes in the level of production.