It is the cost per unit of production. Average Cost (AC) is calculated with the help of the following formula:
AC = Total cost/Output unit
The average cost has further two components: Average Variable Cost and Average Fixed Cost. So, AC can also be calculated using its two components:
Average cost = Average fixed cost (AFC) + Average variable cost (AVC)
Let’s break down each of these components:
Average Fixed Cost (AFC)
Average Fixed Cost is the cost of fixed resources per unit and is calculated as,
AFC = Total fixed cost/Quantity of output
The concept is represented in tabular and graphical format below:
| Production (in units) | Total Fixed Cost | Average fixed cost (TFC/Output) |
| 1 | 12 | 12 |
| 2 | 12 | 6 |
| 3 | 12 | 6 |
| 4 | 12 | 3 |
| 5 | 12 | 2.4 |
| 6 | 12 | 2 |
| 7 | 12 | 1.71 |
| 8 | 12 | 1.5 |
| 9 | 12 | 1.33 |
