When a firm increased its output by one unit,its AFC decreased.This is an indication that
A)the law of diminishing returns has taken effect.
B)MC

Question

When a firm increased its output by one unit,its AFC decreased.This is an indication that
A)the law of diminishing returns has taken effect.
B)MC < AFC.
C)AVC < AFC.
D)the firm is spreading out its total fixed cost.

Quizplus · Accepted Answer

As the output increased by one unit, but AFC decreased, it implies that the total fixed costs have been spread over a higher number of units produced. This lowering of AFC reinforces the idea that fixed costs are being spread out over a larger quantity of goods, resulting in a lower average fixed cost. Therefore, option D is correct. The law of diminishing returns, MC, and AVC are not related to the reduction in AFC.

When a Firm Increased Its Output by One Unit,its AFC