Which statement about a firm's average fixed cost is correct as output increases in the short run?
Correct answer: C. It normally falls as fixed cost spreads
- A. It normally rises continuously
- B. It normally remains unchanged
- C. It normally falls as fixed cost spreads
- D. It first falls and then becomes zero
Explanation
Average fixed cost equals total fixed cost divided by output. Since fixed cost does not change in the short run, producing more units spreads that cost over more units, so average fixed cost falls. It approaches zero but does not become zero at finite output.
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