Question

What does the average fixed cost curve look like? Why does it look so?

Answer 1

As output increases and TFC remains fixed, AFC declines continuously. As the same volume of fixed cost is divided by the – larger volume of output, AFC must decline. Further, the AFC curve is a rectangular hyperbola in the sense that all rectangles formed by AFC are of equal sizes. The AFC curve is asymptotic to both the axes. This means that it touches neither the horizontal axis nor the vertical axis.