Question

Match the following correctly with their formulas: $$ \text{AFC} = \frac{\text{TFC}}{Q} $$ AFC stands for:

• A. Average Fixed Cost
• B. Average Variable Cost
• C. Marginal Cost
• D. Average Revenue

Hint:

The Average Fixed Cost curve never touches the x-axis or y-axis because Total Fixed Cost is never zero, and we cannot divide by a quantity of zero!

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
In production economics, "Average" costs are found by dividing the total cost by the total quantity ($Q$) produced. "Fixed" costs are those that do not change with the level of output (like rent).

Step 2: Detailed Explanation:
The formula provided is: \[ \text{AFC} = \frac{\text{TFC}}{Q} \]
• TFC = Total Fixed Cost.
• Q = Quantity of output.
• Dividing a fixed total by an increasing quantity results in a value that continuously decreases (forming a rectangular hyperbola curve).

Step 3: Final Answer:
AFC stands for Average Fixed Cost.