Average Fixed Cost vs Total Cost
Average Fixed Cost and Total Cost are two Production & Costs concepts in AP Economics that students often mix up. Average Fixed Cost is the fixed cost per unit of output produced. Total Cost is the sum of all fixed and variable costs incurred by a firm in producing a given level of output. Here is how they compare side by side.
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.
It represents the full economic expense of production and is calculated by adding fixed costs and variable costs at each output level. Total cost starts at fixed cost when output is zero.
Average Fixed Cost vs Total Cost: Per Unit and the Whole Bill
| Average Fixed Cost | Total Cost | |
|---|---|---|
| Level of the figure | A per-unit amount | A dollar total |
| Value at zero output | Undefined, since it would divide by zero | Equal to total fixed cost |
| As output rises | Falls, without limit and without end | Rises, so long as extra units cost anything |
| Multiply it by quantity and you get | Total fixed cost, the same number at every output | Nothing useful; it is already a total |
| Shape on its own diagram | A hyperbola that hugs both axes | Upward sloping from a positive vertical intercept |
| Effect of a rent increase | Shifts up at every output | Shifts up by one lump at every output, leaving the slope alone |
| What it is used to compute | The gap between average total cost and average variable cost | Profit, as total revenue minus total cost |
Recover total fixed cost once and the rest of the table falls out
Multiply average fixed cost by the quantity where it was measured and you have total fixed cost, which is the same number at every other quantity on the table. Suppose a question gives 20 units with average fixed cost of 4.50 and average variable cost of 7. Total fixed cost is 4.50 times 20, or 90. Total variable cost is 7 times 20, or 140. Total cost is 230 and average total cost is 11.50, which matches 4.50 plus 7. Now the question moves to 30 units and states that average total cost is 10. Total cost there is 300. Total fixed cost has not changed, so it is still 90, leaving total variable cost of 210 and average variable cost of 7 again. Average fixed cost has fallen to 3, and 3 plus 7 returns the 10 you were handed. The whole drop of 1.50 in average total cost came from the fixed side, and marginal cost across that range is the extra 70 of total cost divided by 10 extra units, or 7. The step students skip is the reset: average fixed cost changes when quantity changes, while total fixed cost does not.
They travel in opposite directions from the same anchor number
Total cost climbs as output rises while average fixed cost falls, yet both are tied to the same total fixed cost, which explains the shape of each curve. On a totals diagram, total fixed cost is the vertical intercept: at zero output the firm has produced nothing and still owes it, so the curve starts above the origin, and the vertical distance between total cost and total variable cost stays equal to that intercept at every quantity. Anyone who draws total cost through the origin has drawn total variable cost by mistake. On the averages diagram, average fixed cost is a hyperbola. Multiply any point on it by its quantity and the rectangle you get always has the same area, because that area is total fixed cost. The curve approaches the horizontal axis and never lands. One consequence is worth memorizing: a rent increase raises total cost by the same lump at every output, shifting the curve up without changing its slope, which is why marginal cost is untouched while average fixed cost and average total cost both rise. Both computations are worked at /calculate/total-cost and /calculate/average-fixed-cost.
Frequently asked questions
How do you find total fixed cost from average fixed cost?
Multiply average fixed cost by the quantity at which it was reported. Average fixed cost of 4.50 at 20 units gives total fixed cost of 90, and that 90 stays valid at 30 units, at 50 units and at zero output. Running the multiplication at a different quantity than the one that produced the average is the usual mistake, since average fixed cost changes with output while the total behind it does not.
Why can average fixed cost never reach zero?
Dividing a positive constant by any finite quantity leaves a positive result, however small. A total fixed cost of 90 spread over 300 units is 0.30 per unit, and over 900 units it is 0.10, always shrinking and never arriving. On a graph the curve moves closer and closer to the horizontal axis without touching it, which is also why average total cost stays above average variable cost at every level of output.
What does total cost equal when output is zero?
Total fixed cost, not zero. A firm producing nothing still owes rent, insurance and any other commitment that does not depend on production, so the total cost curve begins at a positive height on the vertical axis. Average fixed cost, by contrast, is undefined at zero output because the division has no answer there. In the long run the reply changes, since no input is fixed and a firm making nothing can commit to nothing.
Live Production Costs graph. Drag the curves, or open the full version.
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