Question

a) Assume Scrub-It-Clean is a small contract cleaning firm specialising in cleaning school classrooms, which measures its output as the number on classrooms it can clean in any given day (or night). Its fixed costs of production are equal to $50 per day for the hire of vacuum cleaners and other cleaning equipment. Calculate Scrub-It-Clean’s average fixed costs of production and plot its AFC curve on Figure 1. (Hint: AFC at Quantity 0 and Quantity 1 are $50; Quantity 2 is $25, etc.) Figure 1 Average fixed cost (AFC) curve Explain the shape for the AFC curve for Scrub-It-Clean. Will all firms’ AFC curves be of similar shape to Scrub-It-Clean’s? Briefly explain why.

Answer 1

Average Fixed cost = Fixed cost/quantity. Thus we can see that as the quantity increases, the AFC declines.

Thus, the AFC curves slope downward continuously as the quantity increases.

All the firms will have the same shaped AFC. Since the fixed cost remains constant, AFC will decline for all firms as the quantity will increase. Thus all AFC will be of the same shape.