Total cost

Producing more cakes requires more flour, eggs and packaging, so their total cost rises. Producing fewer cakes reduces these costs. Pay based on the number of items produced can also be variable, whereas a fixed salary is a fixed cost.

As output increases, fixed costs stay unchanged while total variable costs rise, so total costs rise too. At zero output, total costs still include the fixed costs. This explains why temporarily stopping production does not necessarily remove all of a business's spending.