MGMT100 Lecture 9: week 9 A
Document Summary
Variable costs are the per-unit costs of production that fluctuate depending on how many units a company produces. Often variable costs go down with higher levels of production. Fixed costs are costs that do not vary with the number of units produced. Fixed costs include the rent or the cost of owning and maintaining a factory, utilities such as power and water, and the cost of equipment. Average fixed cost is the fixed cost per unit produced; i. e. the total fixed cost divided by the number of units produced. Although the total fixed cost remains the same no matter how many units are produced, the average fixed cost will decrease as the number of units produced increases. As we produce more and more units, average fixed costs go down, and so does the price we must charge to cover fixed costs. As a company produces more of a product, both average fixed costs and average variable costs may decrease.
