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In the short run, as the output of a firm steadily increases, its average fixed cost (AFC):
AIncreases continuously
BDecreases continuously
CRemains constant
DFirst falls and then rises
Answer & Solution
Correct 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_
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