Variable Costs as Total Minus Fixed Costs

Steps:

• Locate output level S on the horizontal axis of the cost diagram.
• Identify total cost (TC) as the vertical distance from origin to TC curve at S.
• Identify fixed cost (FC) as the vertical distance from origin to horizontal FC line at S.
• Subtract FC from TC to find variable cost (VC) as the vertical gap between FC and TC at S.

Why D is correct:

• QS measures the vertical distance between TC and FC curves at output S, equaling VC by definition (VC = TC - FC).

Why the others are wrong:

• A. PQ likely represents a segment of fixed costs on the FC line.
• B. PS may indicate total costs from a reference point to S.
• C. OR could denote fixed costs from origin to FC level.

Final answer: D