Which of the following best describes how total cost is calculated in microeconomics?

• A. Total cost equals fixed cost plus variable cost.
• B. Total cost equals total revenue minus profit.
• C. Total cost equals price multiplied by quantity.
• D. Total cost equals marginal cost times quantity.

Answer: (A)

Verified step by step guidance

1. Understand the components of total cost in microeconomics: total cost (TC) is the sum of fixed costs (FC) and variable costs (VC). Fixed costs are expenses that do not change with the level of output, while variable costs vary with production.
2. Recall the formula for total cost: \(\text{TC} = \text{FC} + \text{VC}\), which means total cost is calculated by adding fixed costs and variable costs together.
3. Evaluate the other options by their definitions: total revenue minus profit gives total cost, but this is a rearrangement of the profit equation rather than a direct calculation of total cost; price multiplied by quantity gives total revenue, not total cost; marginal cost times quantity does not equal total cost because marginal cost is the cost of producing one additional unit, not the average cost per unit.
4. Confirm that the best description of total cost calculation is the sum of fixed and variable costs, as this directly reflects the total expenses incurred in production.
5. Summarize that in microeconomics, total cost is most accurately and commonly calculated as \(\text{TC} = \text{FC} + \text{VC}\).