The correct answer is: B. Decreases
Average fixed cost (AFC) is a measure of how much it costs a firm to produce one unit of output, given that it has already incurred certain fixed costs. Fixed costs are costs that do not change with the level of output, such as rent, insurance, and depreciation.
In the short run, a firm cannot change its fixed costs. As a result, AFC decreases as output increases. This is because the fixed costs are spread out over a larger number of units of output. For example, if a firm has a fixed cost of $100 and produces 10 units of output, its AFC is $10 per unit. If the firm produces 20 units of output, its AFC is $5 per unit.
The graph below shows the relationship between AFC and output. As you can see, AFC decreases as output increases.
The other options are incorrect because:
- Option A is incorrect because AFC decreases as output increases.
- Option C is incorrect because AFC is not constant.
- Option D is incorrect because AFC does not first decline and then start rising.