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» <html><body><p></p>Solution : fixed costs are defined as <a href="https://interviewquestions.tuteehub.com/tag/expenses-980258" style="font-weight:bold;" target="_blank" title="Click to know more about EXPENSES">EXPENSES</a> that do not change as a function of the activity of a business, within the relevant period. For <a href="https://interviewquestions.tuteehub.com/tag/example-978283" style="font-weight:bold;" target="_blank" title="Click to know more about EXAMPLE">EXAMPLE</a>, a retailer must pay rent and <a href="https://interviewquestions.tuteehub.com/tag/utility-1441817" style="font-weight:bold;" target="_blank" title="Click to know more about UTILITY">UTILITY</a> bills irrespective of sales. It shows that AFC <a href="https://interviewquestions.tuteehub.com/tag/decreases-946143" style="font-weight:bold;" target="_blank" title="Click to know more about DECREASES">DECREASES</a> as output increases. It is a rectangular <a href="https://interviewquestions.tuteehub.com/tag/hyperbola-1034512" style="font-weight:bold;" target="_blank" title="Click to know more about HYPERBOLA">HYPERBOLA</a> curve. It means that the product of AFC and output is equal to TFC which remains constant at all levels of output.</body></html>