(i) The per unit cost incurred on fixed factors of production is known as average fixed cost.
AFC = \(\frac{TFC}{Output}\)
(ii)    

AFC falls as output increases because
AFC = \(\frac{TFC}{Output}\)and TFC remains constant.  
So, as output increases, TFC remains constant, AFC falls.

(i) The cost incurred on variable factors of production is known as TVC.
(ii) TVC is very much related with the production and fluctuates with the fluctuation in production.
(iii) In case of zero level of production, TVC would also be zero.
(iv) For example, Wages of casual labour, payment for raw material, etc.

(i) Fixed costs are those costs of production which do not change with a change in output.
(ii) These are the costs incurred on fixed factors, like rent of land and building, interest, etc. These are unavoidable contractual costs.
(iii) Fixed costs are also called overhead costs or general costs because these are common for all the units produced. These costs are also called supplementary costs or indirect costs.
(iv) The shape of Total fixed Cost is horizontal (Parallel to X-Axis). They have to be incurred when the output is large or small or even zero.

(i) It happens because when AVC falls, SMC is less than AVC.
(ii) When AVC starts rising, SMC is more than AVC.
(iii) So, it is only when AVC is constant and at its minimum point, that SMC is equal to AVC. Therefore, SMC curve cuts AVC curve at its minimum point.

(i) TC is divided into two parts TFC and TVC such that TC = TFC + TVC.
(ii) TFC is the overhead cost and it remains constant or fixed whatever be the level of output. TFC curve is a horizontal line parallel to the x-axis.
(iii) TVC is cost due to increased use of variable factors like raw material, labour, etc. TVC is inverse S-shaped starting from the origin due to law of variable proportion.
(iv) TC is aggregate of TFC and TVC. TC curve is inverse S-shaped starting from the level of fixed cost. The reason behind it shape is the law of variable proportion.

As, we know the difference between Average Total Cost and Average Variable Cost is average fixed cost (AFC = ATC- AVC) and AFC always decreases with the increase in output. It can be explained with the help of the following diagram and schedule

It can be seen from the above diagram that there is a huge gap between AC and AVC with the starting of production. The gap between them decreases with the increase in production.

It is so because the gap between AC and AVC is AFC and AFC always decreases with the increase in production. The point to be remembered is that AVC can never touch AC curve because AFC cannot be Zero.