(AFC): Average fixed cost equals total fixed cost (TFC) per unit of output (Q) = TFC/Q.

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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.

Average Fixed Costs When Total Fixed Cost is $100

quantity

1

2

3

4

5

6

7

8

9

10

11

12

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

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

quantity

25

26

27

28

29

30

31

32

33

34

35

36

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