In the short run, the shape of the average fixed cost curve for a typical firm is?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rectangular hyperbola.
In the short run, Average Fixed Cost (AFC) is calculated as:
AFC=Total Fixed Cost / Output
As output increases, AFC continuously decreases, but never becomes zero. Its curve is downward sloping and forms the shape of a rectangular hyperbola, meaning the product of output and AFC remains constant (equal to total fixed cost).
