Question
For positive total fixed cost and positive output, consider the following statements about average fixed cost. Interpret elasticity as signed point elasticity, not its absolute magnitude. (i) Its slope is always negative. Choose the correct answer.
(ii) Its slope is always greater than one.
(iii) Its slope is always equal to one.
(iv) Its elasticity with respect to output equals +1.
The correct answer is
Only (i)
\(AFC=\frac{F}{Q},\qquad \frac{d(AFC)}{dQ}=-\frac{F}{Q^2}<0\)
\(E_{AFC,Q}=\frac{d(AFC)}{dQ}\frac{Q}{AFC}=-1\)
Only (i) is correct. The signed elasticity is −1; its absolute magnitude is 1.
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