1. What is Average Fixed Cost?

Average Fixed Cost (AFC) is a microeconomics concept that represents the fixed cost per unit of output. It is calculated by dividing total fixed costs by the quantity of output produced. Fixed costs are expenses that do not change with the level of production.

2. How Does the Calculator Work?

The calculator uses the Average Fixed Cost formula:

Where:

• \( Total\ Fixed\ Cost \) — Sum of all fixed costs (currency units)
• \( Quantity \) — Number of units produced

Explanation: As production increases, average fixed cost decreases because the same fixed costs are spread over more units.

3. Importance of AFC Calculation

Details: Understanding average fixed cost is essential for pricing decisions, break-even analysis, and determining optimal production levels in business operations.

4. Using the Calculator

Tips: Enter total fixed cost in currency units and quantity in whole units. Both values must be valid (fixed cost ≥ 0, quantity ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What are examples of fixed costs?
A: Fixed costs include rent, salaries, insurance premiums, and equipment depreciation - expenses that remain constant regardless of production volume.

Q2: How does AFC relate to economies of scale?
A: As production increases, AFC decreases, contributing to economies of scale where per-unit costs fall with higher output levels.

Q3: What's the difference between fixed and variable costs?
A: Fixed costs remain constant regardless of production levels, while variable costs change directly with the quantity produced.

Q4: How is AFC used in pricing decisions?
A: Businesses must cover their AFC in the long run, so understanding this cost helps set prices that ensure profitability.

Q5: Does AFC ever reach zero?
A: No, AFC approaches but never reaches zero as it's always a positive value divided by quantity, though it becomes negligible at very high production levels.