Which of the following statements is correct?

Question

Average fixed cost is always decreasing as production increases.

Average fixed cost is always increasing as production increases.

Average fixed cost is represented graphically as a U-Shaped curve.

Average fixed cost can either decrease or increase as production increases.

Answer 1

The correct statement is:

Average fixed cost is always decreasing as production increases.

Average fixed cost (AFC) is calculated by dividing total fixed costs by the number of units produced. As production increases, the total fixed costs are spread over more units, resulting in a decrease in average fixed cost. Therefore, AFC continually declines as production rises, though it never reaches zero as long as fixed costs exist.