If the average fixed cost of production is the fixed cost per unit of output produced. Then it will .

Option 1 -> Incorrect. While fixed costs remain constant, average fixed cost changes as output changes.

Option 2 -> Incorrect. AFC does not increase with output; it moves in the opposite direction.

Option 3 -> Correct. Since fixed costs are constant, dividing by larger output quantities results in lower AFC.

Option 4 -> Incorrect. AFC follows a continuous declining pattern, not a U-shaped curve.

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Hence, Option 3: Decreases with increase in level of output -> Average Fixed Cost (AFC) = Total Fixed Cost / Quantity. Since total fixed cost remains constant at all output levels (e.g., rent, salaries), when we divide this constant amount by an increasing quantity of output, the AFC continuously decreases. For example, if TFC = ₹1000: at Q=10, AFC=₹100; at Q=50, AFC=₹20; at Q=100, AFC=₹10. This creates a rectangular hyperbola curve that approaches zero but never touches it. -> correct