Average fixed cost (AFC)
A)rises as output rises.
B)rises as output falls.
C)falls as output falls.
D)is always fixed across all output ranges for the given production function.

Question

Quizplus · Accepted Answer

Average fixed cost (AFC) is calculated by dividing total fixed cost by the quantity of output. Since total fixed cost remains the same regardless of the level of output, as output falls, the denominator of the AFC formula decreases, causing AFC to rise. As output rises, the denominator increases, causing AFC to fall. Therefore, option B, "rises as output falls," is the correct answer.

Average Fixed Cost (AFC)