Assertion:AFC curve is, in fact, a rectangular hyperbola.
Reasoning: When output is very close to zero, AFC is arbitrarily large, and as output moves towards infinity, AFC moves towards zero.
Answer & explanation
Correct answer: option 1
The correct answer is option 1: Both Assertion (A) and reasoning (R) are correct and R is the correct explanation of A.
Analysis of Assertion (A) and Reasoning (R):
✔ Assertion (A) is correct:
- Average Fixed Cost (AFC) = TFC / Q
- Since TFC remains constant, as output (Q) increases, AFC continuously decreases.
- The AFC curve forms a rectangular hyperbola, meaning the product of AFC and Q (i.e., TFC) remains constant.
- Hence, the assertion is correct.
✔ Reasoning (R) is also correct and explains the assertion:
- When output (Q) is very small, AFC = TFC / very small number, making AFC very large.
- As output (Q) increases, AFC = TFC / large number, meaning AFC approaches zero but never actually becomes zero.
- This behavior is what defines a rectangular hyperbola, and the reasoning correctly explains why the AFC curve takes that shape.