What happens to average fixed cost as output increases?

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Prepare for the OnRamps Economics College Exam with detailed multiple-choice questions and explanations. Strengthen your understanding and boost your performance!

Multiple Choice

What happens to average fixed cost as output increases?

Explanation:
Average fixed cost falls as output rises because fixed costs are constant in total, so spreading that same amount over more units lowers the per‑unit fixed cost. Since AFC = fixed cost divided by quantity, increasing quantity reduces AFC, and it drops toward zero as output grows very large. This isn’t a constant or increasing value, and it’s not generally equal to marginal cost, which measures the cost of producing one more unit and depends on variable costs rather than the fixed cost spread.

Average fixed cost falls as output rises because fixed costs are constant in total, so spreading that same amount over more units lowers the per‑unit fixed cost. Since AFC = fixed cost divided by quantity, increasing quantity reduces AFC, and it drops toward zero as output grows very large.

This isn’t a constant or increasing value, and it’s not generally equal to marginal cost, which measures the cost of producing one more unit and depends on variable costs rather than the fixed cost spread.

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