Question

As output increases, the slope of the firm's average fixed cost is:

a) First negative and then positive
b) First positive and then negative
c) Always negative
d) Always positive

Answer 1

The slope of a firm's average fixed cost is always negative as output increases since the fixed costs are distributed over an increasing number of units, making the per-unit cost decrease.

Step-by-step explanation:

As output increases, the slope of the firm's average fixed cost is always negative. This is because fixed costs are constant regardless of the level of output; as more units are produced, the same total fixed cost is spread over more units, leading to a decrease in average fixed cost per unit. Therefore, as output increases, the line on a graph representing average fixed cost gets closer to zero, reflecting a decreasing average fixed cost. If we plot this on a graph, we see a curve that slopes downwards to the right, approaching but never touching zero.