Why is the average fixed cost curve called rectangular hyperbola?
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Average fixed cost curve looks like a rectangular hyperbola. It is ratio of Total Fixed Cost (TFC) to output. 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.
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The average fixed cost curve slopes in a negative way.
First it rises up with small quantities, then when the production increases, it will go down.
Therefore, based on the curve, the name rectangular hyperbola is given.
The average fixed cost will represent the fixed cost incurred through the product or services of the firm.
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