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Firms: Types, Production and Costs: Question 6

Syllabus 3.6

Multiple choice 1 mark

Quillcraft Prints is a small print shop. Its fixed costs (rent and printer-lease payments) are $800 per month, whatever the number of prints it makes. In January, the shop made 100 prints. In February, it made 200 prints, twice as many as in January, while its fixed costs stayed the same at $800.

What was the shop's average fixed cost (AFC) per print in February?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Identify the correct figures to use

Average fixed cost (AFC) is total fixed cost divided by output, for a given month. The question asks for February’s AFC, so the output figure needed is February’s output of 200 prints, not January’s 100.

Step 2: Divide fixed cost by February’s output

AFC=Total fixed costOutput=800200=4AFC = \frac{\text{Total fixed cost}}{\text{Output}} = \frac{800}{200} = 4

So the average fixed cost per print in February is $4.

Step 3: Notice why AFC has fallen

Total fixed cost is still $800, exactly as it was in January. Fixed costs do not change with output. But because that same $800 is now spread over 200 prints instead of 100, the fixed cost carried by each individual print has fallen. This is the general pattern for AFC: it always falls as output rises, because a constant total fixed cost is divided by a growing number of units.

Step 4: Rule out the other options

  • A ($8) is January’s AFC (800÷100800 \div 100), not February’s.
  • C ($2) comes from dividing by 400, an output figure that was never given.
  • D ($800) is the total fixed cost, not the average fixed cost per print.

Final answer

February’s average fixed cost is 800÷200=4800 \div 200 = 4, i.e. $4 per print, option B.