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Question -

 What are the average fixed cost, average variable cost and average cost of a firm? How are they related?



Answer -

 AFC: The per unit cost incurred on fixed factors of production is known as average fixed cost.
AFC=TFC/Q
AFC always decreases as the firm increases the level of production. AVC: It is variable cost per unit of output produced.
AC=TC/Q
t is obtained by dividing the total variable cost by the quantity of output.
AVC initially decreases. But after reaching the stage of minimum cost it starts increasing. AVC is U-Shaped. AC: It is cost per unit of output produced. It can be obtained by dividing the total cost by the quantity of output produced.
Relationship between AFC, AVC and AC. There is a unique relationship among AC, AFC and AVC. AC is the sum of AFC and AVC, i.e.,
AC = AFC + AVC.

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