In the short run, when the output of a firm increases, its average fixed cost __________.

increases

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decreases

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remains constant

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first declines and then rises

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Solution

The correct option is B decreases
The AFC curve is asymptotic to to both the x and y axis as the fixed cost can never be 0 since fixed cost is positive. It slopes downwards throughout its length from left to right showing continuous fall in average fixed cost with an increase in output.

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