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Question
Why does average fixed cost fall as output rises?
Short Answer
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Solution
- Average Fixed Cost (AFC) falls because the Total Fixed Cost (TFC) is spread over more units of output.
- AFC = `"TFC"/"Output"`
- Fixed costs, such as rent and salaries, remain constant regardless of production volume. As a company produces more, the same fixed cost is distributed across more units, lowering the cost per unit.
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