Question

Use a diagram and paragraph to explain the shape of the AFC curve

Answer 1

Let the following be the fixed cost and average fixed cost schedule and graph.

As it can be seen in the graph, that the shape of AFC is like the shape of left half part of U.

It shows that initially AFC decreases fastly when output increases but after some time, as the output increases, the AFC decreases slowly. The fixed cost is a horizontal line, it means Fixed cost does not change with the change in the output level but the only the AFC decreases as the output level increase but it never becomes zero, it remains positive at every output level.