What is the behaviour of (a) Average Fixed Cost and (b) Average Variable Cost as more and more units of a good are produced?

Average Fixed Cost-It can be obtained by dividing Total Fixed Cost by Quantity of output.

AFC = TFC/Q

(i) As output increases, AFC goes on declining. The AIC Curve is, therefore a downward sloping curve.

(ii) As output approaches zero, A-FC approached infinity but AIC curve never touches the Y-axis. AFC curve never touches X-axis also. Actually, this curve takes the shape of Rectangular Hyperbola.

Average Variable Cost-It can be obtained by dividing the Total Variable Cost (TVC) by the quantity of output Q.

AVC = TVC/Q

As output rises, the AVC first falls, reaches a minimum level and then begins to rise. Thus, AVC curve has a U-shape.