As output increases, fixed cost per unit:Group of answer choicesremains constant.increases.equals to fixed costs.decreases.
Question
As output increases, fixed cost per unit:
- Group of answer choices
- remains constant.
- increases.
- equals to fixed costs.
- decreases.
Solution
The answer is "decreases".
Here's why:
-
Fixed costs are costs that do not change with the level of output or production. They are incurred regardless of whether the company produces any units or not.
-
When we talk about fixed cost per unit, we are dividing the total fixed cost by the number of units produced.
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As the number of units produced (output) increases, the fixed cost per unit decreases because the same total fixed cost is being spread over more units.
-
Conversely, if the number of units produced decreases, the fixed cost per unit increases because the same total fixed cost is being spread over fewer units.
Therefore, as output increases, fixed cost per unit decreases.
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