CA Foundation · Business Economics · Theory of Production and Cost
Which statement about the relationship between average fixed cost (AFC) and output in the short run is correct?
AFC falls continuously as output increases but never reaches zero. Since total fixed cost is constant and is spread over more units, AFC declines, forming a rectangular hyperbola, unlike the U-shaped AVC and ATC curves.
- AAFC rises continuously as output increases
- BAFC falls continuously as output increases but never reaches zeroCorrect
- CAFC is U-shaped like AVC
- DAFC remains constant at all output levels
Explanation
Total fixed cost is constant, so AFC = TFC/Q falls as Q rises. It approaches zero but never touches it because TFC is positive. It is a rectangular hyperbola, not U-shaped.
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