A Perfect Competitor's Choice- either 'Limp Along' or 'Shut Down' (an analysis of fixed and variable costs): Please note that we previously learned that Average Total Cost (ATC) is calculated by adding Average Variable Cost (AVC) and Average Fixed Cost (AFC). AVC and AFC are very different as it relates to production. Remember that AVC is tied to production. You only incur AVC when you produce. Average Fixed Costs operate much differently. These costs are usually prepaid costs such as prepaid rent or prepaid insurance. TFC is not tied to production and occurs whether you are producing or not. Let's say that you want to start a business. You pay for the first six month's rent (fixed cost) and pay a person to make widgets (variable cost). At the end of three months you decide to end your business endeavor. Your variable costs end when you discharge your worker, but your fixed costs continue because you have prepaid for six month's rent. Even though you are no longer producing, you are incurring these fixed costs. Unprofitable businesses are up against the same problem when it comes to these two costs, and basically have two options: Option 1- Even though currently