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Why does the average fixed cost (AFC) curve slope downward throughout its length yet never touch the X-axis?
ABecause the total fixed cost itself rises as output rises
BBecause AFC stays equal to marginal cost at every output
CBecause variable cost falls steadily as output keeps rising
DBecause a fixed TFC is spread over more units but stays above zero
Answer & Solution
Correct answer: D. Because a fixed TFC is spread over more units but stays above zero
1. AFC = TFC / Q, and TFC is a fixed positive amount.
2. As Q rises, the same TFC is divided over more units, so AFC keeps falling, giving the downward slope.
3. Since TFC stays positive, AFC approaches but never reaches zero, so the curve never touches the X-axis.
4. TFC does not rise with output (A), AFC is unrelated to falling variable cost (C) and is not equal to MC (B). Hence option B.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.5–6_
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