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Question

What are the average fixed cost, average variable cost and average cost of a firm? How are they related?

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Solution

Average fixed cost (AFC) is the fixed cost per unit of output produced.
AFC=TFCQ
Average variable cost (AVC) is the variable cost per unit of output produced.
AVC=TVCQ
Average cost (AC) is the sum of average fixed cost and average variable cost. So that, AC curve is the vertical summation of AFC and AVC curves.
AC=AFC+AVC

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