The average cost curve is u-shaped because costs reduce as you increase the output, up to a certain optimal point. From there, the costs begin rising as you increase the output. Average cost is defined as the total costs (fixed costs + variable costs) divided by total output.
Why does the average fixed cost decline?
Fixed costs are those costs that must be incurred in fixed quantity regardless of the level of output produced. As the total number of units of the good produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.
Why is an average fixed cost curve a Rectangularhyperbola?
Average fixed cost curve looks like a rectangular hyperbola. TFC remains constant throughout all the output levels and as output increases, with TFC being constant, AFC decreases. AFC can never be zero because it is a rectangular hyperbola and it never intersects the x-axis and thereby can never be equal to zero.
What is the shape of AFC curve Class 11?
Rectangular hyperbola
Thus the shape of AFC curve is Rectangular hyperbola.
Why does the fixed cost curve have a downward sloping shape?
As shown above, the average fixed cost has a downward-sloping hyperbolic shape, since average fixed cost is just a constant number divided by the variable on the horizontal axis. Intuitively, an average fixed cost is downward sloping because, as quantity increases, fixed cost gets spread out over more units.
What is the shape of the average fixed cost ( AFC curve?
The AFC curve is a rectangular hyperbola in the sense that all rectangles formed by AFC are of equal sizes. Correct answer is (C), Sloping down towards the right. The average fixed costs AFC curve is downward sloping because fixed costs are distributed over a larger volume when the quantity produced increases.
How are fixed and variable costs broken down?
As stated earlier, total cost can be broken down into total fixed cost and total variable cost. The graph of total fixed cost is simply a horizontal line since total fixed cost is constant and not dependent on output quantity.
Why is the aggregate demand curve downward sloping?
The reason for this is that the low domestic price level causes the local interest rate to fall ( see above ). Whenever that happens, domestic investors tend to shift their investments to foreign countries with higher interest rates to get a better return.
