The average fixed cost (AFC) decreases as output (q) increases. If we multiply any value q of output with its corresponding AFC, we always get a constant, namely ____________ .
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Total Fixed Cost
Some costs, such as the rent of the factory, stay the same whatever the firm produces; their total is the total fixed cost (TFC). Spread over more units, it leaves a smaller share per unit, the average fixed cost, AFC = TFC / q. Multiplying AFC by q undoes the division, so AFC × q always gives back the total fixed cost.
This constant product is why the AFC curve is a rectangular hyperbola: every rectangle drawn under it has the same area, TFC.
Why the other options are incorrect
Option (1) Average Fixed Cost — Incorrect. AFC is the figure that keeps falling as output rises, so it cannot be the constant that the product gives.
Option (2) Average Variable Cost — Incorrect. AVC is total variable cost per unit. AVC multiplied by q gives total variable cost, which rises with output, not a constant.
Option (4) Marginal Cost — Incorrect. Marginal cost is the change in total cost when one more unit is produced; it has nothing to do with multiplying AFC by output.
NCERT (2025-26): “Shapes of the Short Run Cost Curves … 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.…” |