Which one of the following is a true statement about average fixed costs? Average fixed costs

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BlackTom AI · Accepted Answer

To start, let's restate the prompt and the given option to ensure we understand what is being evaluated.
Question: Which one of the following is a true statement about average fixed costs? Answer choice provided: D. fall as output increases.

Now, analyze the concept at hand: average fixed cost (AFC) is defined as total fixed costs (which do not vary with output) divided by the quantity of output (AFC = FC / Q). Since FC is constant and Q rises as output increases, the ratio FC/Q drops as Q grows. This is a standard result in cost theory: fixed costs are spread over more units, reducing the fixed cost per unit.

Option A (if present in the full set) would typically involve statements about the behavior of fixed costs or average variable costs, but since no other options are shown, we focus on the one provided.

Evaluating the statement in D: "fall as output increases" aligns exactly with the definition and behavior of AFC. As output expands from Q1 to Q2, AFC = FC / Q diminishes because the numerator stays the same while the denominator grows, causing a downward slope in the AFC curve.

In terms of potential misconceptions, some students might confuse average fixed cost with average variable cost (AVC) or average total cost (ATC). Unlike AFC, AVC tends to have a U-shape due to increasing variable costs per unit at different production levels, and ATC combines both fixed and variable components. The key distinction here is that AFC is unaffected by changes in variable costs and strictly falls with higher output due to cost spreading.

Since the statement directly reflects the fundamental property of AFC—constant fixed costs spread over more units leading to a lower per-unit fixed cost—the option expresses a true relationship between AFC and output.

Keep in mind that this explanation is focused on the concept of average fixed costs and their behavior with respect to output, without invoking other cost relationships that could complicate the interpretation.

Which one of the following is a true statement about average fixed costs? Average fixed costs

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