Given the Average Fixed Cost, how does one calculate its minimum?

  • $\begingroup$ I’m voting to close this question because no effort and unclear about production and market structure leaving the question impossible to answer $\endgroup$ – Jesper Hybel Dec 16 '20 at 18:43

As the quantity of output of a good increases, fixed cost (by definition) remains the same and therefore average fixed cost per unit of output continuously decreases. Therefore the average fixed cost curve does not have a minimum, except in the sense that it is asymptotic to zero.

A much more important concept than average fixed cost is average total cost, that is, the average of the sum of fixed and variable costs. This often has a minimum, but can be continuously decreasing when there are significant economies of scale.

  • $\begingroup$ This is what I had thought too, but an answer to one of the questions in a questionbook that I'm using says that for AFC = Q^2 -10Q +50 + 72/Q the Average Fixed Cost is minimum when 2Q - 10 - 72/Q^2 = 0. This is odd to me because fixed cost doesn't depend on the quantity produced. Does the book mean ATC instead? Would you please tell me how it had calculated its minimum? Thank you. $\endgroup$ – asdfghjkl Dec 7 '20 at 7:22
  • $\begingroup$ @asdfghjkl Finding the minimum from the given formula for AFC is a straightforward application of calculus, setting dAFC/dQ=0. The problem is that the given formula for AFC cannot be correct (72/Q on its own would be fine). Not having seen the book I can't tell, but it does seem likely that the formula was meant to be for ATC. Fixed cost 72 together with variable cost Q^3 - 10Q^2 + 50Q would imply ATC = Q^2 - 10Q + 50 + 72/Q. $\endgroup$ – Adam Bailey Dec 7 '20 at 13:07

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