Question

Explain the nature and shape of the curves of average fixed cost.

Answer 1

Nature:

• AFC is calculated by dividing TFC by the number of units produced:
  AFC = `"TFC"/"Output"`
• Since TFC is constant, AFC falls continuously as output increases.
• It never becomes zero but approaches zero asymptotically.

Shape of the AFC Curve:

• The AFC curve is a downward-sloping, rectangular hyperbola.
• This shows that AFC decreases with increased output but never touches the X-axis.