CA Foundation · Business Economics · Theory of Production and Cost
Why does the short-run average fixed cost (AFC) curve slope downward throughout and never touch the axis?
AFC slopes downward because the constant total fixed cost is spread over more units as output rises, and it never reaches zero because total fixed cost is a positive amount. The curve is a rectangular hyperbola approaching, but never touching, the output axis.
- AFixed cost per unit falls as output rises, but total fixed cost remains a positive constantCorrect
- BTotal fixed cost falls as output increases
- CMarginal cost is always below AFC
- DFixed cost becomes variable at higher output
Explanation
AFC = TFC/Q. TFC stays constant while Q rises, so AFC keeps falling, a rectangular hyperbola. Since TFC is positive, AFC can approach but never reach zero. Total fixed cost does not fall with output, so the second option is wrong.
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