Average Fixed Cost
What is Average Fixed Cost?
Average Fixed Cost is the fixed cost per unit of output produced.
It is found by dividing total fixed cost by quantity of output. Since fixed costs do not change with output, average fixed cost continuously declines as output increases.
Average Fixed Cost: a worked example
A print shop leases one press for $600 a month no matter how many posters it runs. At 100 posters, AFC = 600 ÷ 100 = $6 per poster. At 300 posters, AFC = 600 ÷ 300 = $2. At 600 posters, AFC = 600 ÷ 600 = $1. The same $600 keeps getting spread over more units, which is why the AFC curve slides toward the horizontal axis without ever touching it. The relationship also runs backward. If a table reports ATC of $9 and AVC of $6 at an output of 200, then AFC is $3, and total fixed cost is 3 × 200 = $600, matching the lease.
The mistake students make with average fixed cost
Students draw average fixed cost as a U, copying the shape of ATC and AVC onto the third curve out of habit. Nothing in AFC can turn upward: the numerator is locked at total fixed cost and the denominator only grows, so 600 ÷ 100 = $6 must give way to 600 ÷ 600 = $1. A second version of the error is claiming AFC reaches zero at high output. Dividing $600 by 10,000 gives 6 cents, small but positive, so the curve approaches the quantity axis without landing on it.
Average Fixed Cost questions
How do you find average fixed cost from ATC and AVC?
Subtract average variable cost from average total cost at the same output level. AFC = ATC minus AVC follows directly from TC = FC + VC divided through by quantity. If a firm producing 400 units shows ATC of $11 and AVC of $8.50, then AFC is $2.50 and total fixed cost is $1,000. Exam tables often hide fixed cost this way, so the subtraction is worth memorizing.
Why does average fixed cost always fall as output rises?
Total fixed cost stays put while output grows, so the same dollar amount gets divided among more and more units. A $900 insurance premium costs $9 per unit across 100 units and $1.80 per unit across 500 units. Economists call this spreading the overhead, and it is one of the two forces behind the U shape of average total cost, the other being diminishing marginal returns pushing average variable cost up.
Does average fixed cost exist in the long run?
No fixed costs exist in the long run, because every input including plant size and equipment can be changed, so average fixed cost has no long run counterpart. Long run analysis uses a single curve, long run average total cost, built from the lowest points available across all possible plant sizes. Average fixed cost is strictly a short run idea tied to at least one input the firm cannot adjust yet.
Formula / Example
This is the live Production Costs sandbox. Drag the curves, or open the full version.
Related terms
Common comparisons
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