What is the average fixed cost?

Average fixed cost refers to the fixed costs associated with production divided by the total quantity of output produced. Fixed costs, such as rent, salaries, or equipment depreciation, do not change with the level of output; they are constant regardless of how much is produced. By calculating average fixed cost, you can determine how much of the fixed cost is allocated to each individual unit of output. This measurement is crucial because it helps businesses understand the cost structure and pricing strategies. As production increases, the average fixed cost decreases since the same fixed costs are spread across more units, leading to economies of scale.