Fixed Cost Total Cost when Variable Cost
0
Fixed Cost
Total Cost
1

When Variable Cost equals zero, the Total Cost is simply the Fixed Cost. This tells us that the business must still cover its set expenses, like rent and salaries, even if no products or services are sold. It’s like throwing a party and still having to pay for the venue, even if no guests show up!

In real-world business scenarios, understanding this concept helps companies plan their budgets effectively. For instance, a startup might operate at a loss initially, covering only fixed costs while ramping up production. Keeping an eye on variable costs is crucial to eventually turning a profit and sustaining operations!