Average fixed costs are the fixed costs per unit of output. Since fixed costs do not change in the short run with changes in output, as production increases, the same fixed costs are spread over a larger number of units, causing the average fixed costs per unit to decrease. Therefore, average fixed costs always fall with increases in production.

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Average Fixed Costs

Question 4

Multiple Choice

Average fixed costs

A) are always rising with increases in production
B) are dependent on marginal costs.
C) are dependent on average variable costs.
D) are always falling with increases in production.

Correct Answer: