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    Question

    As output increases, what happens to average fixed

    cost?
    A Increases Correct Answer Incorrect Answer
    B Decreases Correct Answer Incorrect Answer
    C Remains unchanged Correct Answer Incorrect Answer
    D First increases, then decreases Correct Answer Incorrect Answer

    Solution

    Average fixed cost decreases as output increases because fixed costs are spread over a larger number of units. This reduction reflects the cost advantage gained through increased production, diminishing the per-unit cost of fixed expenses like machinery and building leases.

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