Fixed cost is a cost that does not change with the change in output. Therefore, it remains constant irrespective of the level of output. On the other hand, average fixed cost is computed by dividing fixed cost by output. Hence, as output rises, average fixed cost falls.

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As Output Rises

Question 81

Multiple Choice

As output rises

A) fixed cost and average fixed cost both rise.
B) fixed cost and average fixed cost both fall.
C) fixed cost and average fixed cost are constant.
D) fixed cost falls and average fixed cost is constant.
E) fixed cost is constant and average fixed cost falls.

Correct Answer: