Fixed costs spread over more output units

Steps:

• Calculate average fixed cost (AFC) as total fixed cost (TFC) divided by output (Q): AFC falls from 10 (1000/100) to 5 (1000/200), 3.33 (1000/300), and 2.5 (1000/400).
• Calculate average variable cost (AVC) as total variable cost (TVC) divided by Q: AVC falls from 10 (1000/100) to 7.5 (1500/200), 6.67 (2000/300), and 6.25 (2500/400).
• Observe TFC remains constant at 1000, so AFC decreases with higher Q.
• Note TVC rises but not proportionally, so AVC decreases, not stays constant or rises.

Why A is correct:

• AFC = TFC/Q; with constant TFC, AFC falls as Q increases, spreading fixed costs over more units.

Why the others are wrong:

• B: AVC decreases from 10 to 6.25, not constant.
• C: AVC decreases from 10 to 6.25, not constant.
• D: AVC decreases from 10 to 6.25, does not rise.

Final answer: A