If we multiply any value of output with its corresponding AFC, we always get a ________.
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Constant
The answer is Constant. Here's why:
- AFC (Average Fixed Cost): AFC is calculated as Total Fixed Cost (TFC) divided by the quantity of output (Q): AFC = TFC / Q.
- If you multiply AFC by the corresponding quantity of output (Q), you get: AFC * Q = (TFC / Q) * Q.
- The Q's cancel out, leaving you with TFC.
- TFC (Total Fixed Cost): By definition, total fixed cost is constant regardless of the level of output.
Therefore, AFC * Q = TFC, which is a constant value.