Short-Run Cost Concepts:

The short-run period in production has been explained as when some inputs are fixed and others are variable. On the fixed inputs, the firm will incur fixed costs and on the variable inputs the firm will incur variable cost.

(a) Total Fixed Cost (TFC)

Total fixed cost is the cost incurred on fixed factors. It is the sum of all explicit and implicit costs relating to the firm's inputs. Since the level of fixed factors employed do not change with output in the short-run, total fixed cost tends to be constant over time. The firm still pays for fixed costs even if no output has been produced. Hence, they are sometimes referred to as unavoidable costs. Examples of fixed costs include rent on premises, rates, interest payments on loans, and hire purchase installment payments, etc.

Average Fixed Cost (AFC) is total fixed cost per unit of output produced, meaning it is TFC divided by quantity of output produced (Q).

AFC = TFC/Q