Average fixed cost
Also called: AFC · Topic: Production Function, Returns and Costs · NCERT: Class 12, Ch 3 "Production and Costs"
Meaning
Average fixed cost is total fixed cost divided by output: AFC = TFC / q. Total fixed cost does not change with output, so AFC falls all the time as output rises. The same fixed amount is spread over more and more units. AFC × q always equals the same number (TFC), so the AFC curve is a rectangular hyperbola. It comes very close to both axes but never touches them. AFC is undefined at zero output.
Example
A firm's fixed cost is ₹20 (NCERT Table 3.3). AFC is ₹20 at 1 unit, ₹4 at 5 units and ₹2 at 10 units. It keeps getting smaller but never becomes zero.
Don't confuse with
- Average variable cost: U-shaped, first falling and then rising. AFC only falls.
- "AFC becomes zero at large output": this is false. AFC only approaches zero.
Related concepts
- Average variable cost
- Short run average cost
- Short run marginal cost
- Relationship between marginal and average cost