ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In the short run, when the output of a firm increases, its average fixed cost decreases. Fixed cost remains same irrespective of number of output produced. So, with increase in output, Fixed cost contribution decreases per unit.

Detailed explanation-2: -When the units of production increase, the average fixed cost per unit decreases. Similarly, when the business produces less units, the average cost increases per unit. However, only one unit, mostly capital, is fixed.

Detailed explanation-3: -When a firm increases output, total costs will rise because of a change in variable costs. Total cost of production is the sum of fixed costs and variable costs. Fixed costs do not change regardless of quantity of output. In contrast, variable costs increase with output.

Detailed explanation-4: -When a firm looks at its total cost of production in the short run, a useful starting point is to divide total cost into two categories: fixed costs that cannot be changed in the short run and variable costs that can be changed in the short run.

Detailed explanation-5: -Which of the following short run cost continues to decrease as output increases? Average variable cost.