Q.Explain why the Average Fixed Cost (AFC) curve continuously falls as output increases but never actually touches the output axis (never becomes exactly zero), however large output becomes.
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Start your 14-day free trial to unlock the full solution →Average Fixed Cost is defined as , where TFC is a FIXED, positive rupee amount that does not change however much output the firm produces.
As output Q rises, the SAME fixed sum TFC is being spread across more and more units, so each unit's SHARE of that fixed cost keeps shrinking — this is exactly the everyday idea of "spreading overheads" over a larger volume of production. Mathematically, dividing a fixed positive number by successively larger and larger values of Q produces smaller and smaller quotients: for instance, with , AFC falls from Rs. 60 at Q=1, to Rs. 30 at Q=2, to Rs. 6 at Q=10, to Rs. 0.60 at Q=100, and so on. …
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