What is defined as fixed cost per unit of output produced?

The concept of fixed cost per unit of output produced is best captured by average fixed cost. Fixed costs are expenses that do not change with the level of production; they remain constant regardless of how much or how little is produced. To find average fixed cost, you take the total fixed costs and divide them by the quantity of output produced. This gives you the cost attributable to each individual unit produced, which is essential for understanding how fixed costs spread over different levels of production.

For example, if a factory has a total fixed cost of $10,000 and produces 1,000 units, the average fixed cost would be $10 per unit. As production increases, the average fixed cost per unit decreases because the same fixed cost is being distributed over a larger output, illustrating the concept of economies of scale. This is crucial in microeconomics when analyzing cost structures and pricing strategies for firms.