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* * Most students quickly grasp the following example. Suppose FC = $1 million for a factory that produces cars. If the firm produces Q = 1 car, then AFC = $1 million. If the firm produces 2 cars, AFC = $500,000. If the firm produces 5 cars, AFC = $200,000. If the firm produces 100 cars, AFC = $10,000. The more cars produced at the factory, the smaller is the cost of the factory per car. * * Many students have heard the terms “cost per unit” or “unit cost” in other business courses. ATC means the same thing. * * In this example, the efficient scale is Q=5, where ATC = $7
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