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 analyze the statements about average fixed costs, I’ll go option by option and explain what each means and whether it aligns with how average fixed costs behave.
Option A: 'equal total costs minus total variable costs' — This is a mischaracterization. Average fixed costs are not defined as total costs minus total variable costs; that expression more resembles total fixed costs, which is fixed cost per unit is not computed this way. In other words, this option confuses how costs are categorized and averaged.
Option B: 'include rent and raw materials' — While rent can be a fixed cost and raw materials are typically a variable cost, average fixed costs specifically concern fixed costs per unit of output. The statement about what fixed costs include is true in a general sense for cost accounting, but it does not describe the behavior of average fixed costs as output changes, so it’s not addressing the defining characteristic.
Option C: 'do not change as output changes' — This describes total fixed costs, which stay constant regardless of output. However, average fixed costs decrease as output increases because you spread the same fixed cost over more units. Therefore, this option incorrectly describes the average fixed cost behavior.
Option D: 'fall as output increases' — This is the key property of average fixed costs: as production expands, the fixed cost is allocated over a larger number of units, causing the fixed cost per unit to decline. This reflects the classic concept of diminishing average fixed cost with higher output, due to cost spreading across more units.
Putting these together, the options collectively cover definitions and behaviors of cost concepts, but the statement that captures the true behavior of average fixed costs with respect to output is the idea that average fixed costs fall as output increases, since fixed costs are constant in total but per-unit costs decline as production rises.

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

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