Question

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

Answer 1

Answer:

Option (c) is correct.

Explanation:

Average fixed costs is determined by dividing the total fixed costs by the amount of output produced.

For example:

Total fixed cost = $5,000

Number of units initially produced = 100 units

Therefore, the average fixed cost at 100 units is calculated as follows:

$\frac{Total\ fixed\ cost}{Ot\ produced}$

$=\frac{5,000}{100}$

= $50 per unit

Now, suppose the number of units produced increases from 100 units to 200 units. Then, the average fixed cost is calculated as follows:$=\frac{Total\ fixed\ cost}{Ot\ produced}$

$=\frac{5,000}{200}$

= $25 per unit

Therefore, we can conclude that as the output of a particular firm increases, as a result the average fixed cost decreases.