Short Run Average Costs
Short Run Average Costs While the total cost of production helps firms understand the overall expenses incurred, the average costs help identify the expenditures involved in manufacturing a single unit. In this article, we will look at the short run average costs and marginal costs of production. Short Run Average Costs 1. 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 A F C = T F C Q 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, A F C = T F C Q = 2000 100 = R s . 20 If the output is increased to 200 units , then A F C = T F C Q = 2000 200 = R s . 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. Browse more Topics under Theory Of Cost Cost Concepts S