Average fixed cost, Microeconomics

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Average Fixed Cost (AFC): AFC is the fixed cost per unit of output.

AFC = TFC/y

Since the TFC is constant throughout the short run, as y increases AFC will decline. Therefore, the AFC curve is downward sloping.

Average Variable Cost (AVC) : AVC is the variable cost per unit of output.

AVC = TVC/y.

AVC will generally decrease as the output increases. But because of the operation of the law of diminishing marginal product, the AVC will rise after a certain point. Notice that is it a mirror image of the average product curve. Manipulating the formulae of both will prove that AVC is inversely related to AP.


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