Average fixed cost – If we divide total fixed cost (TFC) by quantity of production, we obtain Average fixed cost (AFC).
AFC = TEC/q
Where q = quantity of production
Average fixed cost declines with every increase in production level because TFC is constant. Fig. Shows average fixed cost.
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. The elasticity at all points of rectangular hyperbola curve remains unitary.
