AFC is a horizontal straight line, said Mintoo. And TFC is a rectangular hyperbola, said Minku. Who is correct?
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: No one
AFC is a rectangular hyperbola and TFC is horizontal straight line.
Let's analyze each statement:
- AFC (Average Fixed Cost):
- AFC is calculated as TFC/Q (Total Fixed Cost divided by Quantity).
- TFC is a constant value.
- As Q increases, AFC decreases, but it never reaches zero.
- Therefore, AFC is a downward-sloping curve, specifically a rectangular hyperbola, not a horizontal straight line.
- TFC (Total Fixed Cost):
- TFC is a constant value, meaning it doesn't change with the level of output.
- Therefore, TFC is represented by a horizontal straight line.