Average Fixed Cost (AFC)
Total fixed cost divided by the number of units of output tells us the
average fixed cost per unit of output. Average fixed cost declines
continually as output increases because the amount of the fixed cost
attributed to each unit of output falls. This is known as spreading overhead
Average Variable Cost (AVC)
Total variable cost divided by the number of units of output tells us the
average variable cost per unit of output. For reasons that we will soon
see, average variable cost first declines as output rises, reaches a
minimum, and then increases as output continues to rise.
Marginal Cost (MC)
The increase in total cost resulting from a one-unit increase in the level of
output is called marginal cost. (Marginal costs are always marginal
variable costs because fixed costs do not change as output varies.)
Marginal cost is calculated as the change in total cost divided by the
change in output that brought it about: [ 16 ]
ATC=TC/Q
ATC=AFC+AVCAFC=TFC/QAVC=TVC/QMC=ΔTC/ΔQ