Question

If sales fall by 20 percent from 1,000,000 papers per month to 800,000 papers per month, what happens to the afc per paper?

Answer 1

The average fixed cost (AFC) per paper increases when sales fall by 20 percent from 1,000,000 papers to 800,000 papers, assuming total fixed costs remain unchanged, because the same fixed costs are allocated over fewer units.

Step-by-step explanation:

When sales fall by 20 percent from 1,000,000 papers to 800,000 papers per month, this affects the average fixed cost (AFC) per paper. The AFC is the total fixed costs divided by the number of units (papers in this case) produced and sold. Fixed costs are costs that do not change with the volume of production, such as rent, salaries, or equipment leases. If total fixed costs remain constant, and the number of units sold decreases, the AFC per paper would increase because the same amount of fixed costs is spread over fewer papers.

For example, if the total fixed costs are $100,000 per month when selling 1,000,000 papers, the AFC per paper is $0.10 ($100,000 / 1,000,000 papers). However, if sales fall to 800,000 papers, the AFC per paper increases to $0.125 ($100,000 / 800,000 papers) because the same fixed costs are now divided by fewer papers.

Answer 2

The average fixed cost of paper is the same. Average fixed cost or afc is the fixed costs of production per unit of goods. Falling sales of paper by 20% is not related to production cost but to profit. Thus, decrease in sales will not affect the average fixed cost of the paper.