Principles of Microeconomics / Unit 6 MIC 0523 short lesson, about 20 seconds
Average Fixed Cost Falls Forever
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The idea
Average fixed cost is a fixed sum over a growing output, so it falls at every step and never turns up. Spreading overhead is why average total cost falls at first.
In practice
A hundred dollars over twenty loaves is five; over eighty it is one twenty-five.
Where people slip
Falling average fixed cost cannot keep average total cost falling once marginal cost climbs above it.
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