Average fixed cost rises as output falls

Steps:

• Fixed costs remain constant regardless of production level.
• Average fixed cost (AFC) equals total fixed cost divided by output quantity.
• Decreasing production reduces the quantity, increasing AFC since the numerator stays fixed.
• Variable costs and their averages typically decrease or remain stable per unit with lower output.

Why A is correct:

• AFC increases as production decreases per the formula AFC = TFC / Q, where smaller Q enlarges the ratio.

Why the others are wrong:

• B includes 3 (average variable cost), which stays constant or falls, not rises.
• C includes 2 (total variable cost) that decreases and 4 (total fixed cost) that remains unchanged.
• D is 4 only; total fixed cost does not change with production.

Final answer: A