What is the usual shape for an average fixed cost curve?

Correct option is A

Correct Answer: A Rectangular hyperbola

Explanation:
The average fixed cost (AFC) curve represents the fixed cost per unit of output. Fixed costs remain constant regardless of output, so as output increases, the average fixed cost decreases. Mathematically, it is expressed as:

​$$\text{AFC} = \frac{\text{Total Fixed Cost (TFC)}}{\text{Quantity (Q)}}$$​​

Since TFC is constant, and Q increases, AFC continually decreases but never reaches zero. The curve is asymptotic to both axes, forming the shape of a rectangular hyperbola.

• At low levels of output, AFC is high because the fixed cost is spread over a small number of units.
• As output increases, AFC declines rapidly, then more gradually, approaching zero but never touching the horizontal axis.

Information Booster:

·         Fixed costs do not vary with the level of output (e.g., rent, salaries).

·         Average fixed cost decreases as production increases, demonstrating economies of scale.

·         AFC curve is asymptotic to both the x-axis (output) and y-axis (cost).

·         AFC does not increase or turn upward at any point because fixed costs do not change.

·         The shape of the AFC curve is crucial for understanding cost structures in microeconomics.