Multiple choice

The average fixed cost

  1. remains the same whatever the level of output

  2. increases as output increases

  3. diminishes as output increases

  4. all of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Average fixed cost = Total Fixed Cost / Quantity. Since TFC is constant, AFC falls as output increases - the fixed cost is spread over more units. AFC is a rectangular hyperbola, approaching zero but never reaching it as output grows.

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