Question

which of the following is true about average fixed cost?
a. average fixed cost is the difference between marginal cost and average total cost.
b. average fixed cost has a u - shape, and marginal cost crosses average fixed cost at its minimum point.
c. average fixed cost is total fixed cost divided by the quantity of output produced, and it declines steadily as output increases.
d. average fixed cost does not vary as output increases.

Explanation:

• Option a: Average fixed cost is average total cost minus average variable cost, not marginal cost minus average total cost. This is incorrect.
• Option b: Average fixed cost continuously declines as output rises, it does not have a U-shape. Marginal cost crosses average total cost (not average fixed cost) at its minimum. This is incorrect.
• Option c: By definition, average fixed cost is calculated as $\frac{\text{Total Fixed Cost}}{\text{Quantity of Output}}$. Since total fixed cost is constant, increasing output causes average fixed cost to fall steadily. This is correct.
• Option d: Total fixed cost does not vary with output, but average fixed cost decreases as output increases. This is incorrect.

Answer:

c. Average fixed cost is total fixed cost divided by the quantity of output produced, and it declines steadily as output increases.