Equilibrium of the firm – Total Revenue and Total Cost Curves Approach.

Firm will be in equilibrium position at the level of output where its money profits is maximum. It can maximize its profits by producing at that particular level of output where the difference between total revenue and total cost is maximum. This can be explained with the help of a diagram. The above diagram shows […]

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 […]

As output rises, the Average fixed cost (AFC) goes on declining

The AFC curve is therefore an onward sloping curve. (ii) As output approaches Zero, average fixed cost approaches infinity, but AFC curve never touches the Y-axis. On the other hand, as output reaches very high levels, average fixed cost approaches zero, but it never reduces itself to zero, it always remains positive. Hence the AFC […]