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In the short run, when the output of a firm increases, its average fixed cost :
- a)increases.
- b)decreases.
- c)remains constant.
- d)first declines and then rises.
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
In the short run, when the output of a firm increases, its average fix...
Explanation:
Average fixed cost (AFC) is the fixed cost per unit of output. It is calculated by dividing the total fixed cost (TFC) by the total output (Q).
Formula: AFC = TFC/Q
Short Run: In the short run, at least one factor of production is fixed and cannot be changed. For example, a firm may have a fixed amount of capital such as a building, machinery or land.
When the output of a firm increases, the average fixed cost will decrease due to the spreading effect of fixed cost over a larger output.
Example:
Suppose a firm has a fixed cost of $1000 and produces 100 units of output, then AFC will be:
AFC = TFC/Q = $1000/100 = $10
If the firm increases its output to 200 units, then AFC will be:
AFC = TFC/Q = $1000/200 = $5
Therefore, as the output increases, the fixed cost is spread over a larger number of units, reducing the average fixed cost.
Conclusion:
In the short run, when the output of a firm increases, its average fixed cost decreases. Therefore, option 'B' is the correct answer.
Average fixed cost (AFC) is the fixed cost per unit of output. It is calculated by dividing the total fixed cost (TFC) by the total output (Q).
Formula: AFC = TFC/Q
Short Run: In the short run, at least one factor of production is fixed and cannot be changed. For example, a firm may have a fixed amount of capital such as a building, machinery or land.
When the output of a firm increases, the average fixed cost will decrease due to the spreading effect of fixed cost over a larger output.
Example:
Suppose a firm has a fixed cost of $1000 and produces 100 units of output, then AFC will be:
AFC = TFC/Q = $1000/100 = $10
If the firm increases its output to 200 units, then AFC will be:
AFC = TFC/Q = $1000/200 = $5
Therefore, as the output increases, the fixed cost is spread over a larger number of units, reducing the average fixed cost.
Conclusion:
In the short run, when the output of a firm increases, its average fixed cost decreases. Therefore, option 'B' is the correct answer.
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Community Answer
In the short run, when the output of a firm increases, its average fix...
Decrease is a correct answer
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In the short run, when the output of a firm increases, its average fixed cost :a)increases.b)decreases.c)remains constant.d)first declines and then rises.Correct answer is option 'B'. Can you explain this answer?
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