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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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