1. What is Average Fixed Cost?

Average Fixed Cost (AFC) is the fixed cost per unit of output produced. Fixed costs are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

2. How Does the Calculator Work?

The calculator uses the AFC formula:

Where:

• \( AFC \) — Average Fixed Cost (USD per unit)
• \( Total\ Fixed\ Cost \) — Sum of all fixed costs (USD)
• \( Output \) — Quantity of goods produced (units)

Explanation: The formula divides the total fixed costs by the number of units produced to determine the fixed cost allocated to each unit.

3. Importance of AFC Calculation

Details: Calculating AFC helps businesses determine the minimum price they must charge to cover fixed costs, understand economies of scale, and make production decisions.

4. Using the Calculator

Tips: Enter total fixed costs in USD and output in units. All values must be positive numbers (fixed cost > 0, output ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between fixed and variable costs?
A: Fixed costs remain constant regardless of production levels (e.g., rent), while variable costs change with production volume (e.g., raw materials).

Q2: Why does AFC decrease as output increases?
A: Because the same fixed costs are spread over more units of production, reducing the cost per unit.

Q3: What are some examples of fixed costs?
A: Common fixed costs include rent, salaries, insurance premiums, equipment leases, and property taxes.

Q4: How is AFC used in pricing decisions?
A: AFC helps determine the minimum price needed to cover fixed costs, especially important when starting production or during periods of low sales.

Q5: Does AFC apply to service businesses?
A: Yes, service businesses can calculate AFC by dividing fixed costs by the number of services provided or customers served.