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Question
What does the average fixed cost curve look like? Why does it look so?
Solution
Average fixed cost curve looks like a rectangular hyperbola. It is defined as the ratio of TFC to output. We know that TFC remains constant throughout all the output levels and as output increases, with TFC being constant, AFC decreases.
When output level is close to zero, AFC is infinitely large and by contrast when output level is very large, AFC tends to zero but never becomes zero. AFC can never be zero because it is a rectangular hyperbola and it never intersects the x-axis and thereby can never be equal to zero.
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RELATED QUESTIONS
What is the behaviour of average fixed cost as output is increased? Why is it so?
A firm’s average fixed cost, when it produces 2 units, is Rs 30. Its average total cost schedule is given below. Calculate its marginal cost and average variable cost at each level of output.
|
Output (units) |
1 |
2 |
3 |
|
Average Total Cost (Rs) |
80 |
48 |
40 |
Choose the correct alternative from given options:
Average fixed cost curve ____________.
Complete the following table :
| Output Units |
Marginal Cost Rs |
Average Variable Cost Rs | Total Cost Rs |
Average Fixed Cost Rs |
| 1 | 60 | ...... | 120 | ...... |
| 2 | ...... | ...... | 174 | ...... |
| 3 | ...... | 54 | ...... | ...... |
| 4 | 54 | ...... | ...... | 15 |
| 5 | ...... | 57 | 345 | ...... |
