Question

Which of the following is​ true?
A. Total fixed costs decrease when volume increases.
B. Total fixed costs increase when volume increases.
C. Fixed cost per unit increases when volume increases.
D. Fixed cost per unit decreases when volume increases.

Answer 1

Answer:

The correct answer is option D.

Explanation:

Fixed costs are the cost incurred by the firms which are independent of the volume of activities. It remains fixed in the entire production process and does not vary with the level of output produced.  

The total fixed costs do not change with the change in volume. The fixed cost per unit or average fixed cost is the ratio of total fixed cost and the level of output.  

AFC = $\frac{TFC}{Q}$

So the average fixed cost will decline as the volume increases and rises as the volume decreases.