The more units are produced, the more we see this cost curve decline.

• A. AVC
• B. ATC
• C. AFC
• D. MC

Answer: (C)

The main idea is that fixed costs don’t change with output, so as you produce more units, you spread those same fixed costs over more units. This makes the average fixed cost per unit fall as production increases. That’s why the cost curve that declines with more output is the average fixed cost curve.

For context, total fixed cost stays the same no matter how much you produce, while total cost changes with output because of variable costs. If fixed costs are high relative to output, dividing them across more units lowers AFC sharply. For example, with a fixed cost of 100 and a constant variable cost of 5 per unit, AFC drops from 10 per unit at 10 units to 2 per unit at 50 units.

Other cost curves don’t necessarily keep falling as output grows. Average variable cost can rise or fall depending on how variable costs behave with higher production (often due to diminishing marginal returns). Average total cost falls initially because AFC is falling, but it can rise later if AVC starts increasing. Marginal cost, the cost of producing one more unit, can move up or down depending on those diminishing returns and isn’t guaranteed to decline as output increases.