The shape of the average fixed cost curve is ______.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rectangular hyperbola
The Average Fixed Cost (AFC) curve is shaped like a rectangular hyperbola because fixed costs remain constant regardless of output, but the average fixed cost decreases as output increases. This is due to the formula:
AFC=Total Fixed Cost/ Output
As the denominator (output) increases, the value of AFC continuously falls, but never becomes zero. This results in a curve that declines rapidly at first and then flattens, forming the shape of a rectangular hyperbola.
