Question

When a firm increased its output by one unit, its AFC decreased. This is an indication that Group of answer choices
the law of diminishing returns has taken effect.
MC < AFC.
AVC < AFC.
the firm is spreading out its total fixed cost.

Answer 1

Answer:

The firm is spreading out its Total Fixed Cost

Explanation:

Total Fixed Cost is the total production expenditure incurred on fixed factors of production. TFC is cost level of cost even at zero level of output, it stays same for all output levels. Eg : Cost incurred on Building, Machine .

Average Fixed Cost is the average TFC, per unit of output.  AFC = TFC / Q

TFC stays same irrespective of level of output. So, TFC constant along with rising Q makes average i.e AFC falling. This implies that constant TFC is being spread over production quantity.