Choose the correct statements from the options given below in terms of the shapes of the short run cost curves.
(A) Average fixed cost curve is a rectangular hyperbola.
(B) Total fixed cost is horizontal straight line.
(C) Average variable cost is upward sloping.
(D) Marginal cost is U shaped.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (D) only
(A) Average fixed cost curve is a rectangular hyperbola. — Correct. Average fixed cost (AFC) is total fixed cost (TFC) divided by output. TFC is a constant, so AFC multiplied by output stays the same. A curve with this property is a rectangular hyperbola.
(B) Total fixed cost is horizontal straight line. — Correct. TFC does not change with output, so it is a horizontal straight line that cuts the cost axis.
(C) Average variable cost is upward sloping. — Incorrect. Average variable cost first falls. It rises only after marginal cost has risen above it. So the curve is ‘U’-shaped, and only its later part slopes upward.
(D) Marginal cost is U shaped. — Correct. Short run marginal cost follows the law of variable proportions. As output rises it first falls, and after a point it rises.
NCERT (2026-27): “Shapes of the Short Run Cost Curves … TFC is a constant which takes the value c1 and does not change with the change in output. It is, therefore, a horizontal straight line cutting the cost axis at the point c1. At q1, TVC is c2 and TC is c3. AFC is the ratio of TFC to q. TFC is a constant. Therefore, as q increases, AFC decreases. When output is very close to zero, AFC is arbitrarily large, and as output moves towards infinity, AFC moves towards zero. AFC curve is, in fact, a rectangular hyperbola. If we multiply any value q of output with its corresponding AFC, we always get a constant, namely TFC. … Let us now look at the SMC curve. Marginal cost is the additional cost that a firm incurs to produce one extra unit of output. According to the law of variable proportions, initially, the marginal product of a factor increases as employment increases, and then after a certain point, it decreases. This means initially to produce every extra unit of output, the requirement of the factor becomes less and less, and then after a certain point, it becomes greater and greater. As a result, with the factor price given, initially the SMC falls, and then after a certain point, it rises. SMC curve is, therefore, ‘U’-shaped. … Then, as output increases, SMC falls. AVC being the average of marginal costs, also falls, but falls less than SMC. Then, after a point, SMC starts rising. AVC, however, continues to fall as long as the value of SMC remains less than the prevailing value of AVC. Once the SMC has risen sufficiently, its value becomes greater than the value of AVC. The AVC then starts rising. The AVC curve is therefore ‘U’-shaped.…”
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