Demand & Supply: Firm: AFC curve shape

[siidheart]

Q1. Can Average fixed cost curve (AFC) be upward sloping also? Because going by the law of diminishing marginal returns, there comes a time when marginal output is negative, ie, it brings the production down. So, the production first increased at increasing rate, then decreasing rate, and then came down with additional unit of labor. So, can AFC actually slope upward? — Is it hypothetical?

 

[freecfa]

Hi there,
Fixed costs are, as the name suggests, fixed so are constant. Therefore as AFC is FC/Q then as quantity increases fixed costs per unit can only decrease. So to answer your question you I do not think that you could have an upward sloping AFC.
Hope this helps

 

[S2000magician]

No: the average fixed cost curve cannot slope upward; as quantity increases, AFC decreases.

 

[siidheart]

S2000magician wrote:
No: the average fixed cost curve cannot slope upward; as quantity increases, AFC decreases.

Though I must not complicate the simple side, but, i read somewhere “law of diminishing marginal returns” „, which suggests that the addition to the total output by addding one unit of labor can be negative also. Say 1 labor unit produces 10 output, 2 - 25, 3 - 45, 4 - 55, 5 - 60, 6 - 60, 7 - 58……….
So, as AFC at 6 will be less than AFC at 7 (58)… AFC slopes upward! But I know this is hypothetical. May be the company won’t employ 7th unit because there was no improvement with 6th.

 

[S2000magician]

First, diminishing marginal returns simply means that, after some point, each additional unit of some input produces less additional output than the last unit of input did. But it can still be producing positive additional output. The situation you described is negative marginal returns, not merely diminishing marginal returns.
Second, the average fixed cost curve has output quantity on the horizontal axis, not input units. So when you hit 7 input units and you’ve decreased your output, you’re miving to the left on the average fixed cost curve, not to the right.