Multiple choice

In the short run, when the output of firm increases, its average fixed cost

  1. increases

  2. decreases

  3. remains constant

  4. first decreases and then increases
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Average fixed cost (AFC) equals total fixed cost divided by output quantity (AFC = TFC/Q). Since fixed costs don't change with output, as output (Q) increases, the same TFC is spread over more units, causing AFC to continuously decrease. Option B is correct. Option A is opposite of what happens. Option C would only be true if fixed costs changed proportionally with output (impossible by definition). Option D describes average total cost behavior, not AFC.

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