The total factor cost curve reflects the degree of market control held by a firm. For a perfectly competitive firm with no market control hiring inputs under perfect competition, the total factor cost curve is a straight line that emerges from the origin. For firms with market control, including monopsony, oligopsony, or monopsonistic competition, the total factor cost curve increases at an increasing rate. The shape of the total factor cost curve thus indicates the degree of market control possessed by the factor buyer.

Total Factor Cost Curve, Perfect Competition

Total factor cost is commonly represented by a total factor cost curve, such as the one displayed in the exhibit to the right. This particular total factor cost curve is that for labor hired by a hypothetical buyer, Maggie's Macrame Shoppe. Maggie's Macrame Shoppe is one of thousands of small retail stores in the greater Shady Valley metropolitan area that hires labor with identical skills. As such, Maggie pays the going wage for labor.

The vertical axis measures total factor cost and the horizontal axis measures the quantity of input (workers). Although quantity on this particular graph stops at 10 workers, the nature of perfect competition indicates it could go higher.

This curve indicates that if Maggie hires 1 worker, then she pays $10 of total factor cost. Alternatively, if she hires 10 workers, then she pays $100 of total factor cost. Should she hire 100 workers, then she would move well beyond the graph, with $1000 of total factor cost.