Questions: 25. The average-fixed-cost curve..
is constant.
is always decreasing.
intersects marginal cost at the minimum of average fixed cost.
intersects marginal cost at the minimum of marginal cost.
Transcript text: 25. The average-fixed-cost curve..
is constant.
is always decreasing.
intersects marginal cost at the minimum of average fixed cost.
intersects marginal cost at the minimum of marginal cost.
Solution
The answer is the second one (B): is always decreasing.
Here's why:
Average Fixed Cost (AFC) is calculated by dividing total fixed costs by the quantity of output (\(AFC = \frac{Total Fixed Costs}{Quantity}\)).
Total Fixed Costs remain constant regardless of the output level.
As Quantity increases, AFC decreases because the fixed costs are spread over a larger number of units.
Therefore, the AFC curve is always downward sloping.
Let's examine the other options:
A: is constant. This is incorrect because AFC changes as quantity changes.
C: intersects marginal cost at the minimum of average fixed cost. This is incorrect. AFC is always decreasing and never reaches a minimum. Also, marginal cost intersects average _total_ cost and average _variable_ cost at their minimum points, not AFC.
D: intersects marginal cost at the minimum of marginal cost. This is incorrect. Marginal cost intersects average _total_ cost and average _variable_ cost at their minimum points, not AFC. Also, Marginal Cost intersects AVC at the minimum of AVC, and intersects ATC at the minimum of ATC.
Summary: The average-fixed-cost curve is always decreasing because fixed costs are spread over an increasing quantity of output.