Given below are two statements: Assertion (A) and Reason (R). Assertion (A): Total cost is the sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC) and varies with level of production. Reason (R): Total fixed cost does not vary with level of production.

Correct option is B

The correct answer is (B) Both (A) and (R) are correct but (R) is NOT the correct explanation of (A)

Explanation:
• Assertion (A) is correct: Total Cost (TC) is indeed the summation of fixed costs (e.g., rent, permanent salaries) and variable costs (e.g., raw materials, fuel). Because TVC increases as production increases, TC also varies with the level of production.
• Reason (R) is correct: By definition, Total Fixed Costs (TFC) are costs that remain constant regardless of whether the firm produces zero or one million units (in the short run).
• Why (R) is not the explanation: The reason TC *varies* is due to the *Variable Cost* component, not the Fixed Cost component. To explain why TC varies, one must point to the fact that TVC changes with output. The fact that TFC remains constant (R) is a true statement about TFC but doesn't explain the variability of TC.

Information Booster:
• In the 'Long Run', all costs are variable because the firm can change its plant size and all other inputs.

Additional Knowledge:
• Average Fixed Cost (AFC): This cost actually *decreases* as output increases (the 'spreading the overhead' effect).
• Marginal Cost (MC): This is the change in Total Cost when one more unit is produced. It is only affected by changes in Variable Cost.