Defining and Graphing Average Fixed Cost and Average Total Cost
The short run is a brief period of time during which only one input can be varied.
Fixed inputs are inputs in the production process that do not change with changes in
output. Examples are machinery and factories.
Variable inputs are inputs that can be changed when output changes. Usually labor is the
only variable input.
Total fixed costs (FC) are short-run costs that that do not vary with output.
Average fixed costs (AFC) are fixed costs divided by total output.
Average variable costs (AVC) are variable costs divided by total output.
Average total costs (ATC) are the summation of AFC and AVC.
All firms have fixed inputs in the short run.
The fixed inputs are usually the factory and
equipment, and the variable input is labor.
To produce output, firms have to combine
fixed and variable inputs, as the graphic on
the left indicates.
Average fixed cost (AFC) is total fixed
cost (FC) divided by total product. Total fixed
costs do not vary with output, but average
fixed costs decrease as total product (TP)
increases.
Geometrically, AFC becomes a rectangular
hyperbola. In other words, as output
approaches infinity, AFC approaches zero.
On the left is the AFC curve showing that it
decreases as output increases.
