Average variable and average total costs get farther apart as output decreases because ________ as output decreases.
A) diminishing returns set in
B) average fixed costs increase
C) marginal costs increase
D) total and total variable costs get farther apart

Question

Quizplus · Accepted Answer

As output decreases, the total fixed costs are spread over fewer units, causing the average fixed cost per unit to increase. Since average total cost includes both average variable cost and average fixed cost, but average variable cost does not, the gap between average total cost and average variable cost widens as the average fixed cost per unit increases.

Average Variable and Average Total Costs Get Farther Apart as Output