Inter-relationship between AVC, ATC and AFC

The inter-relationship between AVC, ATC and AFC can be summed up as follows: If both AFC and AVC fall, ATC will fall. If AFC falls but AVC rises; ATC will fall where the drop in AFC is more than the rise in AVC. ATC will not fall where the drop in AFC is equal to […]

Average total cost and output and short term cost analysis

Average cost, consists of average fixed costs and average variable costs. As we see, average fixed costs begin to fall with an increase output while average variable costs come down and rise. Till the average variable cost come down, the average total cost also comes down, but a point comes when the average variable costs […]

Total Fixed Cost (TFC)

Total fixed Costs are those costs that not vary with the output. They will be the same if output is zero or units or 1 million units. Thus, they are totally unaffected by the changes in rate of outputs. Examples of fixed costs are: (i) Initial establishment expenses, (ii) Rent of the factory, (iii) Expenses […]


There are many different types of costs that a firm may consider relevant for decision-making under varying situations. The manner in which costs are classified or defined is largely dependent on the purpose for which the cost data are being outlined. Explicit and Implicit Costs: The opportunity cost (or cost of the foregone alternative) of […]