Define Fixed Cost. Give an example. Explain with reason the behavior of Average

Fixed Costs are the costs which are incurred on the fixed factors of production like machinery, land, building etc. These costs remain fixed even when the output is zero. For example, rent of premises, interest on loan, salary of Permanent staff etc.

Average fixed cost refers to the per unit fixed cost of production. It is calculated as: AFC = TFC/Q. AFC falls with increase in output as TFC remain same at all levels of output. Its behaviour can be understood with the help of the following schedule:

As seen in the table above that, the AFC falls with rise in output because constant TFC is divided by increasing output.