Which of the following is true about average fixed cost?
A) Average fixed cost has a U-shape, and marginal cost crosses average fixed cost at its minimum point.
B) Average fixed cost does not vary as output increases.
C) Average fixed cost is the difference between marginal cost and average total cost.
D) Average fixed cost is total fixed cost divided by the quantity of output produced, and it declines steadily as output increases.

Question

Quizplus · Accepted Answer

Average fixed cost is calculated by dividing the total fixed cost by the quantity of output produced, and it declines steadily as output increases. This is because as output increases, the fixed cost is spread over a larger quantity of output, thus reducing the per unit fixed cost. Option A refers to the U-shaped average total cost curve, not average fixed cost. Option B is incorrect because average fixed cost does vary as output increases. Option C is incorrect because marginal cost is the difference between total cost and total cost of the next unit, not average fixed cost.

Which of the Following Is True About Average Fixed Cost