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                                                             Show that the average fixed cost curve is a rectangular hyperbola. Or Why is the total revenue curve of a competitive firm a straight line passing through origin? Output Average Fixed Cost Curve

Answer:

 Average Fixed Cost (AFC) can be obtained by dividing Total Fixed Cost (TFC) by the quantity of output\[(Q)\],                         AFC=\[\frac{TFC}{Q}\] Since, total fixed costs remain the same as output rises, Average Fixed Cost diminishes but never becomes zero.                                 As output rises, the Average Fixed Cost (AFC) goes on declining. The AFC curve is, therefore a downward sloping curve. AFC curve never touches either of the axis. Thus, the AFC curve takes the shape of rectangular hyperbola       which shows that the area under the curve (i.e. total fixed cost) always remains the same.                                                                      Or A competitive firm sells its output at a uniform price. The price or Average Revenue (AR) is constant and Marginal Revenue (MR) is also constant as it is equal to AR. The Total Revenue (TR) is the sum total of MR corresponding to different levels of output.                                                      Total Revenue (TR) in Competitive Firm Since MR is constant, TR increases at a constant rate. Thus, TR is an upward sloping straight line. It passes through origin because when output is zero, TR is also zero.