explain the concept fixed cost is a constant even when output is zero
Answers
Fixed costs do not change with output, firms must pay these even if they shut down. Fixed costs are the overhead costs of a business.
Total fixed costs (TFC)
Average fixed cost (AFC) = TFC / output
Average fixed costs must fall continuously as output increases because total fixed costs are being spread over a higher level of production.
A change in fixed costs has no effect on marginal costs. Marginal costs relate only to variable costs!
Variable costs vary directly with output – when output is zero, variable costs will be zero but as production increases, total variable costs will rise.
Average variable cost
(AVC) = total variable costs (TVC) /output (Q)
Total Cost (TC)
Total cost = fixed costs + variable costs
Average Total Cost (ATC or AC)
Average total cost is the cost per unit produced
Average total cost (ATC) = total cost (TC) / output (Q)