Why does the AFC curve fall continuously?
Question: The AFC curve slopes continuously downward because the total fixed cost is the same regardless of output. of the law of diminishing marginal returns. variable costs change as output increases. The MC curve eventually slopes upward because most of the costs are fixed costs.
What is the shape of AFC curve?
Thus the shape of AFC curve is Rectangular hyperbola.
Why AFC curve is Rectangular hyperbola?
AFC curve is rectangular hyperbola because total fixed cost TFC remains constant at all points of AFC i.e. the multiplication between AFC and production quantity at all points of AFC remains constant. It is the reason why AFC declines when production quantity increase.
Why is AFC an asymptote?
Correct Answer : A. Asymptote of a curve is a line such that the distance b/w the curve and the line approaches zero and the slope of the curve at the point approaches the slope of the line. The AFC curve is horizontal asymptote b/c it gets closer and closer to X-axis but never intersect it.}
What is the shape of the average cost curve?
U-shaped
Average cost curves are typically U-shaped, as Figure 1 shows. Average total cost starts off relatively high, because at low levels of output total costs are dominated by the fixed cost; mathematically, the denominator is so small that average total cost is large.
Why does AFC curve never touches the Y axis?
(i) AFC curve never touches the X-axis as TFC can never be zero. AC, AVC and MC curves are U-shaped because of Law of Variable Propertions. (iv) The gap between them is TFC, which remains same with rise in output. (v) AC curve lies above the AVC curve because both AVC and AFC at all levels of output.
What is TVC curve?
The TVC curve is an inverted S upward sloping curve. The main reason for the shape of the TVC curve is the operation of the law of variable proportion. As the total output increases, the TVC initially increases at a decreasing when the production is experiencing increasing returns.
What is total cost curve?
TOTAL COST CURVE: A curve that graphically represents the relation between the total cost incurred by a firm in the short-run production of a good or service and the quantity produced. The total cost curve is a cornerstone upon which the analysis of short-run production is built.
What is relation between AC and MC?
There exists a close relationship between AC and MC. i. Both AC and MC are derived from total cost (TC). AC refers to TC per unit of output and MC refers to addition to TC when one more unit of output is produced. Both AC and MC curves are U-shaped due to the Law of Variable Proportions.