In the short run, as the output of a firm steadily increases, its aver…

Question

In the short run, as the output of a firm steadily increases, its average fixed cost (AFC):

Accepted Answer

B. Decreases continuously

1. AFC = TFC / Q, and TFC is a constant amount in the short run.
2. As Q rises, a fixed numerator is divided by a larger denominator, so AFC keeps falling.
3. Hence AFC decreases continuously as output rises.
4. It does not rise (A), is not constant since the per-unit share keeps shrinking (C), and unlike AVC/ATC it never turns up (D). Hence it decreases continuously.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.5–6_

Answer

Increases continuously

Answer

Remains constant

Answer

First falls and then rises

In the short run, as the output of a firm steadily increases, its average fixed cost (AFC):

Keep practising Unit 3: Production, Cost & Perfect Competition