Which of the following statements about average fixed cost is true?

Average fixed cost refers to the fixed costs of production (costs that do not change with the level of output) divided by the quantity of output produced. As production increases, the total fixed costs remain constant, but when spread over a larger number of units, the average fixed cost decreases. This principle reflects the notion of economies of scale, where fixed costs are distributed over more units, leading to a lower average cost per unit.

For instance, if a factory has fixed costs such as rent and salaries, these costs will remain the same irrespective of how many units are produced. However, if the factory produces 100 units, the average fixed cost per unit will be lower than if it only produces 10 units, since the same total fixed cost is spread over more products. Thus, as production volume increases, average fixed cost decreases, illustrating the relationship between production levels and fixed costs.