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April 13, 2021 

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HOMOGENEOUS: In general, the notion that everything has identical characteristics. For example, a neighborhood might have a homogeneous culture, meaning everyone has similar income, religious preferences, and political views. In economics, it is used in a couple of different ways. One is for production, such that two or more goods are homogeneous if they are physically identical or at least viewed as identical by buyers. Another is for mathematical equations, such that an equation is said to be homogeneous if the independent variables are increased by a constant value, then the dependent variable is increased by a function of that value. In a marketing context, this is a market characterized by buyers with similar needs and wants. This group is targeted with an undifferentiated targeting strategy. The company uses only one marketing mix to satisfy this group of buyers.

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AVERAGE FIXED COST CURVE:

A curve that graphically represents the relation between average fixed cost incurred by a firm in the short-run product of a good or service and the quantity produced. This curve is constructed to capture the relation between average fixed cost and the level of output, holding other variables, like technology and resource prices, constant. The average fixed cost curve is one of three average curves. The other two are average total cost curve and average variable cost curve. A related curve is the marginal cost curve.
Average Fixed Cost Curve
Average Fixed Cost Curve
The average fixed cost curve is negatively sloped. Average fixed cost is relatively high at small quantities of output, then declines as production increases. The more production increases, the more average fixed cost declines. The reason behind this perpetual decline is that a given FIXED cost is spread over an increasingly larger quantity of output.

The graph to the right is the average fixed cost curve for the short-run production of Wacky Willy Stuffed Amigos (those cute and cuddly armadillos and tarantulas). The quantity of Stuffed Amigos production, measured on the horizontal axis, ranges from 0 to 10 and the average fixed cost incurred in the production of Stuffed Amigos, measured on the vertical axis, ranges from a high of $6 to a low of $0.30. Actually, if the quantity is extended beyond 10 Stuffed Amigos, then average fixed cost is less than $0.30. Or if the quantity is reduced below 1/2 unit, then average fixed cost is greater than $6. For the geometrically inclined, this average fixed cost curve is a rectangular hyperbola.

This declining average fixed cost curve is a major reason that the average total curve is negatively sloped for relatively small output quantities. In fact, firms that use a lot of fixed inputs relative to variable inputs, such that fixed cost is a substantial share of total cost, spend a lot of their production time in the decreasing portion of the average total cost curve. This has a big impact on how these firms operate. If average total cost declines with additional production, then a firm can profitably charge a lower price with increased output.

<= AVERAGE FIXED COSTAVERAGE-MARGINAL RELATION =>


Recommended Citation:

AVERAGE FIXED COST CURVE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2021. [Accessed: April 13, 2021].


Check Out These Related Terms...

     | average cost | average fixed cost | average total cost curve | average variable cost curve | average total cost | average variable cost | total fixed cost | total fixed cost curve | variable cost | fixed cost | marginal cost curve | U-shaped cost curves |


Or For A Little Background...

     | opportunity cost | production | production cost | business | factors of production | microeconomics | short-run production analysis | law of diminishing marginal returns | marginal returns | marginal analysis | average product |


And For Further Study...

     | total variable cost | total variable cost curve | total cost | total cost curve | total cost and marginal cost | total cost curves | total variable cost and total product | legal business organizations | firm objectives | opportunity cost, production possibilities | profit | economic profit | accounting profit | normal profit | accounting cost | profit maximization | long-run average cost |


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