What does the average fixed cost curve look like? Why does it look so?
The Average Fixed Cost (AFC) curve is downward sloping and takes the shape of a rectangular hyperbola.
This shape occurs because Total Fixed Cost (TFC) is a constant that does not change with the level of output. Since AFC is the ratio of TFC to output (q), as output increases, AFC decreases. When output is very close to zero, AFC is arbitrarily large, and as output moves towards infinity, AFC moves towards zero.
The rectangular hyperbola shape is explained by the fact that if we multiply any value of output with its corresponding AFC, we always get a constant value, namely TFC. This means the area of the rectangle formed by AFC and quantity remains constant at all levels of output.
Explanation
The textbook clearly explains that the AFC curve is a rectangular hyperbola because TFC remains constant regardless of output level. The mathematical relationship AFC = TFC/q explains why the curve slopes downward - as denominator (output) increases, the ratio decreases. The rectangular hyperbola property (constant area = TFC) is a key characteristic mentioned in the context.