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An explanation of average fixed cost (afc), average variable cost (avc), and average total cost (atc) in the context of production economics. Afc is calculated by dividing total fixed cost by the quantity of output, and it decreases as output increases. Avc is calculated by dividing total variable cost by output, and it reflects the diminishing marginal productivity. Atc is the summation of afc and avc, and it minimizes at a level of output somewhere between the output level where avc is minimized (b) and the output level where afc is minimized (a).
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Uploaded on 09/12/2022
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Average fixed cost
(AFC) is total fixed cost (TFC) divided the quantity of output. B^
TFC d^
t^ h^
dl^ f th
tit f^ t^
t AFC d
Because TFC does not change regardless of the quantity of output, AFC decreases asoutput increases. However, AFC reaches a minimum where production is maximized (A).
Average variable cost
(AVC) is total variable cost (TVC) divided by output. AVC reflects di^ i i hi
i l^ d^
ti it^ b^ i iti ll
d^ li i^
hi^ i i^
d th^ i^
i
diminishing marginal productivity by initially declining, reaching a minimum and then increasing.AVC is minimized at output level B; the same level of output where APP is maximized.
