If output rises and total costs remain fixed, then:
A)average cost will fall.
B)average cost will rise.
C)average cost will eventually increase.
D)fixed cost will eventually rise.
E)variable cost will eventually become fixed at some maximum level.

Question

Quizplus · Accepted Answer

If output rises and total costs remain fixed, the average cost will fall because as output rises, fixed costs are spread over more units of output, leading to a lower average fixed cost. Also, since total costs remain fixed, there will be no change in variable costs per unit, leading to a constant variable cost per unit. Therefore, the average variable cost per unit will also remain constant, resulting in a fall in the average cost per unit of output.

If Output Rises and Total Costs Remain Fixed, Then