As a firm increases the level of output that it produces, short-run average fixed cost
A) rises and then falls.
B) remains constant since fixed costs are constant.
C) decreases.
D) decreases up to a particular level of output and then increases.

Question

Quizplus · Accepted Answer

Short-run average fixed cost decreases as output level increases because the fixed cost is spread over a larger quantity of output. However, once the output level reaches a point where all the fixed inputs are being used at full capacity, the fixed cost per unit of output starts to increase, resulting in a U-shaped short-run average total cost curve.

As a Firm Increases the Level of Output That It