Average Fixed Cost

Average Fixed Cost Assignment Help

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Average Fixed Cost

Average Fixed Cost (AFC) is equal to total fixed cost (TFC) divided by the quantity produced Q. since TFC remains fixed irrespective of the level of output, AFC, i.e. TFC/Q is negatively related to the quantity of output produced. Thus, as the quantity produced Q increases, the coefficient TFC/Q keeps falling, which means that AFC decreases with increase in output. This is because as the firm produces larger output, the TFC gets spread over a bigger quantity and hence AFC continues to fall. AFC curve is negatively sloped or downward sloping. Column 5 that AFC falls continuously from $10 when output level is 10 units down to $ 1.25 when output increases to 80 units. With further increase in output AFC will continue to fall, but would always remain positive. Therefore AFC curve which continuously slopes downward will always remain above X – axis, even when it moves closer and closer to this axis as output expands. AFC will never touch X – axis because AFC cannot be zero; it is always positive.


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