Explain the shapes of the total fixed cost curve and the average fixed cost curve. Give one reason for each, to justify the shape of the two curves.

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Solution

Total Fixed cost Curve is a straight line parallel to x-axis as it remains constant at all levels of output.
The average fixed cost (AFC) curve looks like a Rectangular Hyperbola. It happens because same amount of fixed cost is divided by increasing output. As a result, AFC curve slope downwards and is rectangular hyperbola, i.e. area under AFC curve remains same at different points.

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