Question

average fixed costs a. will always increase as output increases. b. are defined as the change in total costs divided by the change in output. c. will always decrease as output expands. d. will remain unchanged as output expands.

Answer 1

Answer:

The Average cost usually decreases as the output expands.Hence,the answer in this case would be option c. or will always decrease as output expands.

Explanation:

• Fixed costs or expenses of production refers to those that are fixed or constant through out the production process or does not depend on the changes or adjustments in the actual output or production level.
• Some of the common examples of fixed cost of production include building rent,utility bills,land rent,insurance and interest payments.Note that these costs and expenses are fixed and unchanged and any firm or company has to pay them regardless of the production or output level.
• Now,since the average fixed cost of production is calculated by dividing the total fixed cost of production by the quantity of output produced by the firm at any particular period of time,the average fixed cost of production will decrease.As the output expands the denominator of the average fixed cost formula will increase but note that the numerator of the formula or the total fixed cost of production will always remain constant.Therefore,the average cost of production keeps decreasing with an increase in output or production level,signifying economies of scale.