1. What is Average Fixed Cost?

Average Fixed Cost (AFC) is the fixed cost per unit of output produced. It represents the portion of total fixed costs allocated to each unit of production and decreases as production quantity increases.

2. How Does the Calculator Work?

The calculator uses the AFC formula:

Where:

• \( AFC \) — Average Fixed Cost (currency units per unit)
• \( TFC \) — Total Fixed Cost (currency units)
• \( Q \) — Quantity of output (units)

Explanation: The formula divides total fixed costs by the number of units produced to determine the fixed cost allocated to each individual unit.

3. Importance of AFC Calculation

Details: Calculating average fixed cost is essential for pricing decisions, cost analysis, break-even analysis, and understanding how fixed costs behave as production levels change.

4. Using the Calculator

Tips: Enter total fixed cost in currency units and production quantity in units. Both values must be positive numbers (TFC > 0, Q ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between fixed and variable costs?
A: Fixed costs remain constant regardless of production levels (e.g., rent, salaries), while variable costs change with production volume (e.g., raw materials).

Q2: Why does AFC decrease as quantity increases?
A: AFC decreases because the same total fixed cost is spread over more units of production, reducing the fixed cost per unit.

Q3: How is AFC used in pricing decisions?
A: Understanding AFC helps businesses set prices that cover both fixed and variable costs, ensuring profitability at different production levels.

Q4: Can AFC ever be zero?
A: No, AFC approaches zero as quantity increases indefinitely but never actually reaches zero since there's always some fixed cost to allocate.

Q5: How does AFC relate to economies of scale?
A: The decreasing nature of AFC is a key component of economies of scale, where per-unit costs decrease as production volume increases.