Question

Explain the shape of average fixed cost curve Give one reason to justify the shape of the curve.

Answer 1

The Average Fixed Cost (AFC) curve, on the other hand, is downward sloping and takes the shape of a rectangular hyperbola. This is because as output increases, the same fixed cost is spread over more units, reducing the average fixed cost per unit. Although it keeps falling, it never touches the X-axis, because fixed cost can never become zero.