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Which of the followings is true about the average fixed cost? The average fixed cost decreases...

Which of the followings is true about the average fixed cost?

The average fixed cost decreases with the quantity of output produced.

The average fixed cost increases with the quantity of output produced.

The average fixed cost is the same regardless of the quantity of output produced.

The average fixed cost may increase or decrease with the quantity of output produced.

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Answer #1

It shall be noted that the total fixed cost is the cost incurred by the firm even when the production level is zero.

So, as the production takes place, this fixed cost is spread over the output produced.

The average fixed cost is the total fixed cost per unit of output.

Thus, as output increases, the average fixed cost decreases because the same amount of total fixed costs is being spread over a larger number of units of output.

Hence, the correct answer is - The average fixed cost decreases with the quantity of output produced.

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