Question 18
Theory of Costs and RevenueA characteristic of the average fixed cost is that, it
- A.rises and falls faster than the marginal cost
- B.is U-shaped and intersects the price axis
- C.is always higher than the average variable cost
- D.falls continuously but is never equal to zero.
Show the answer and explanation
Answer: D (falls continuously but is never equal to zero.)
Explanation
AFC = fixed cost ÷ output. It keeps falling as output grows, but since fixed cost is never zero, it never reaches zero.