Question

Total fixed cost (TFC):

A. falls as the firm expands output from zero, but eventually rises.
B. falls continuously as total output expands.
C. varies directly with total output.
D. does not change as total output increases or decreases.

Answer 1

Fixed costs remain constant as total output increases or decreases.

Step-by-step explanation:

Fixed costs are the costs that a firm must incur before producing any output, and they remain constant regardless of the level of production. For example, if a firm has fixed costs of $160, these costs are still present even when the firm is not producing anything. As the firm increases its output, it incurs variable costs, which vary with the level of production. The total cost is the sum of fixed costs and variable costs.

In the short run, total fixed costs do not change as total output increases or decreases. They remain constant because they are independent of the level of production. For example, if a firm's fixed costs are $160, these costs will not change regardless of whether the firm produces 100 units or 1,000 units.