Average fixed cost formula in economics is a method to calculate fixed production costs per produced unit. This process is done by dividing the total fixed costs by the number of units produced. These costs are constant and unchangeable, regardless of the number of goods produced and the success of sales. The method for finding average fixed costs is used to calculate how much costs should be used per unit of goods.
Explanation:
This method describes the fact that with an increase in the number of units of goods produced, the amount of expenses for them decreases and vice versa. This technique allows the entrepreneur to calculate the required minimum return on business by calculating average costs. From a mathematical point of view, the formula has the following form: AFC = FC/Q. It is worth mentioning that this formula does not take into account various variable costs, such as resources necessary for production, methods of delivery, and promotion of goods. The sum of the variable and fixed costs forms the average total cost, which forms the final price of the goods.
The formula also explains why with an increase in production, the quality of a specific product decreases. Average fixed cost is often used in macroeconomics to describe basic economic processes as well as methods of production of large industrial enterprises and corporations. In the field of microeconomics, the formula shows the process of development of the small business into medium and large. This calculation system is one of the keys for the entrepreneur to the further successful development of the company and is taught as one of the foundations of the economy.