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On a short-run cost diagram, the vertical distance between the Total Cost (TC) curve and the Total Variable Cost (TVC) curve at any level of output is equal to:
ATotal fixed cost
BMarginal cost at that output
CAverage variable cost
DZero at every output
Answer & Solution
Correct answer: A. Total fixed cost
1. By definition TC = TFC + TVC, so TC − TVC = TFC at every output level.
2. The TC curve is obtained by adding TFC vertically on top of the TVC curve.
3. Hence the constant vertical gap between TC and TVC equals total fixed cost.
4. The gap is not marginal cost (B) or average variable cost (C), and the curves never coincide because TFC is positive (D). Hence total fixed cost.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.5_
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