This text explains the concept of average fixed cost (AFC) and average variable cost (AVC) in economics. AFC is the fixed cost divided by the output, while AVC is the variable cost divided by the output. Both curves are U-shaped, with AFC declining as output increases and AVC increasing as output increases.
Questions
- What is average fixed cost?
- What is average variable cost?
- How do AFC and AVC curves differ?
Answers
- Average fixed cost is the fixed cost divided by the output. It declines as output increases because the fixed cost is spread over more units of output.
- Average variable cost is the variable cost divided by the output. It increases as output increases because the variable cost is a function of output.
- AFC and AVC curves differ in their shape. AFC is a rectangular hyperbole, while AVC is a U-shaped curve. AFC declines as output increases, while AVC increases as output increases.