Average Fixed Costs (AFC)

question 287

Multiple Choice

Average fixed costs (AFC)

• A) will fall in the early stages of production but rise when capacity is maximized.
• B) are constant at any given level of output.
• C) fall continuously as output increases.
• D) increase due to diminishing marginal returns.

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Definitions:

Efficient Scale

The level of production that minimizes long-term average total costs, resulting from economies of scale without incurring diseconomies of scale.

Marginal Cost

The supplementary cost attached to the output of an additional product or service unit.

Diminishing Marginal Product

The principle stating that as one inputs more of a factor of production while holding other inputs constant, the added output produced from each additional unit of the variable input eventually decreases.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, or loan payments.