Question

16
QUESTION 27
When a firm increases its output by one unit, its average total cost (AC) decreased, this implies that
A. Marginal cost (MC) =
Average total cost (AC)
B. Average total cost (AC) < Marqual cad (NO)
Average fixed cost (AFC) Average total (10)​

Answer 1

Answer:

Average Fixed Cost (AFC)

The average fixed cost is the total fixed cost divided by the number of units produced. Hence, if TFC is the total fixed cost and Q is the number of units produced, then

$$AFC = \frac {TFC}{Q}$$

Therefore, AFC is the fixed cost per unit of output.

Example: The TFC of a firm is Rs. 2,000. If the output is 100 units, the average fixed cost is,

$$AFC = \frac {TFC}{Q} = \frac {2000}{100} = Rs. 20$$

If the output is increased to 200 units, then

$$AFC =\frac {TFC}{Q} = \frac {2000}{200}= Rs. 10$$

Since TFC is constant, any increase in output decreases the AFC. Note that, while the AFC can become really small, it is never zero.