Average Fixed Cost
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Average
Fixed Cost (AFC): Average fixed cost equals total fixed
cost (TFC) per unit of output (Q) = TFC/Q. ______________________________________________________________________ Just because total fixed costs do not vary with output does not make an AFC curve horizontal. AFC = TFC/q, where TFC is constant. This figure shows how the AFC is related to the output, as calculated in the table below. Total fixed costs are constant so, as output increases, fixed costs per unit of output decline—a process that many managers describe as “spreading overhead” through high volume. Notice
that if we arbitrarily select any two points on the AFC curve (say, a and b), the rectangles formed by dropping
horizontal and vertical lines to the axes have identical areas ($100). (Since
AFC = TFC/q, multiplication
of AFC by q yields TFC: TFC/q x q =
TFC, which is constant.) Thus, the AFC curve is a rectangular hyperbola and they resemble unitarily elastic demand
curves, which are also rectangular hyperbolas. |
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Average Fixed Costs
When Total Fixed Cost is $100 |
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quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
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AFC |
$100.00 |
$50.00 |
$33.33 |
$25.00 |
$20.00 |
$16.67 |
$14.29 |
$12.50 |
$11.11 |
$10.00 |
$9.09 |
$8.33 |
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quantity |
13 |
14 |
15 |
16 |
17 |
18 |
19 |
20 |
21 |
22 |
23 |
24 |
|
AFC |
$7.69 |
$7.14 |
$6.67 |
$6.25 |
$5.88 |
$5.56 |
$5.26 |
$5.00 |
$4.76 |
$4.55 |
$4.35 |
$4.17 |
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quantity |
25 |
26 |
27 |
28 |
29 |
30 |
31 |
32 |
33 |
34 |
35 |
36 |
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AFC |
$4.00 |
$3.85 |
$3.70 |
$3.57 |
$3.45 |
$3.33 |
$3.23 |
$3.13 |
$3.03 |
$2.94 |
$2.86 |
$2.78 |
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Author: Ralph Byrns |
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Economics
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