EconixaECONOMICS FUNDAMENTALS

Average Fixed Cost

Plain definition

Fixed cost divided by the quantity of output (AFC = FC ÷ Q) — fixed cost per unit.

In economics

Average fixed cost always declines as output rises, because the same fixed outlay is spread over more units; its curve is a rectangular hyperbola. The gap between ATC and AVC curves is exactly AFC, and that gap narrows continuously toward zero as quantity grows.

Example

If rent is 4,000andoutputrisesfrom1,000to5,000meals,AFCfallsfrom4,000 and output rises from 1,000 to 5,000 meals, AFC falls from 4.00 to $0.80 per meal.

Common confusion

AFC is confused with average total cost. AFC covers only fixed costs per unit and always falls; ATC includes variable costs too and eventually rises. Also note: AFC exists only in the short run — in the long run there are no fixed costs.