Q.12.With the help of a hypothetical schedule show the relationship between AC, AVC and AFC.
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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=TFCQ
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=TFCQ=2000100=Rs.20
If the output is increased to 200 units, then
AFC=TFCQ=2000200=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
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