Which of the following graphs best represents the average fixed cost (AFC) curve for a firm?

• A. A U-shaped curve
• B. A downward-sloping curve that approaches zero as output increases
• C. An upward-sloping straight line
• D. A horizontal straight line above the origin

Answer: (B)

Verified step by step guidance

1. Recall the definition of Average Fixed Cost (AFC), which is the fixed cost divided by the quantity of output produced: \(\text{AFC} = \frac{\text{Fixed Cost}}{Q}\).
2. Understand that fixed costs do not change with output, so as output \(Q\) increases, the fixed cost is spread over more units, causing AFC to decrease.
3. Recognize that because fixed cost is constant and quantity increases, the AFC curve will continuously decline but never reach zero, approaching zero asymptotically.
4. Compare this behavior to the given options: a U-shaped curve implies AFC first decreases then increases, which is incorrect; an upward-sloping line means AFC increases with output, which contradicts the definition; a horizontal line means AFC is constant, which is also incorrect.
5. Conclude that the AFC curve is best represented by a downward-sloping curve that approaches zero as output increases.