AS THE LEVEL OF OUTPUT INCREASES, THE AVERAGE FIXED COST OF A FIRM WILL

• A. continue to decrease ✓
• B. remain unchanged
• C. continue to increase
• D. be equal to the total cost

The answer to the question is: A. continue to decrease

As the level of output increases, the average fixed cost of a firm will continue to decrease. This is because fixed costs are spread over a larger number of units as production increases, leading to a lower average fixed cost per unit.

In economics, fixed costs are those that do not vary with the level of output or production. These costs remain constant regardless of the quantity of goods or services produced. Examples of fixed costs include rent, insurance, and salaries of permanent employees.

The average fixed cost (AFC) is calculated by dividing the total fixed cost by the quantity of output. As output increases, the total fixed cost remains constant, but it is spread over a larger number of units, leading to a decrease in the average fixed cost per unit.

This relationship between output and average fixed cost can be illustrated using the following formula:

AFC = Total Fixed Cost / Quantity of Output

As the quantity of output increases, the denominator in this formula becomes larger, leading to a decrease in AFC.