Define fixed cost. Give an example. Explain with reason the behaviour of AFC as output is increased.

Define fixed cost. Give an example. Explain with reason the behaviour

1.	Define fixed cost. Give an example. Explain with reason the behaviour of AFC as output is increased.
Answer» Solution : fixed costs are defined as EXPENSES that do not change as a function of the activity of a business, within the relevant period. For EXAMPLE, a retailer must pay rent and UTILITY bills irrespective of sales. It shows that AFC DECREASES as output increases. It is a rectangular HYPERBOLA curve. It means that the product of AFC and output is equal to TFC which remains constant at all levels of output.