Question

multiple choice question
what is meant by the phrase \spreading the overhead\?
as production increases, average fixed cost declines and then increases.
as production increases, average fixed cost increases.
as production increases, average fixed cost declines.
as production increases, average variable cost always increases.

Explanation:

Overhead refers to fixed costs. Average fixed - cost is calculated as total fixed cost divided by the quantity of output. Since total fixed cost is constant in the short - run, as production (quantity of output) increases, the average fixed cost (total fixed cost/quantity) decreases. This is what "spreading the overhead" means.

Answer:

As production increases, average fixed cost declines.