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Fixed, Variable and marginal Cost Curves: If the total cost increase, does this change average (total)...

Fixed, Variable and marginal Cost Curves:

If the total cost increase, does this change average (total) costs?, how about average variable costs?

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Answer #1

Increase in total cost can happen in two ways 1) upward shift in the total cost curve which means total cost has increased for a given level of output or 2) increase in total cost as the level of production increases.

In the case of a shift in the total cost curve, there will be a change in average total cost (ATC) which is nothing, but the total cost divided by output. However, there will not be any change in the level of average variable cost (AVC) which is variable cost divided by output. Since the shift in total cost curve will happen due to the change in the fixed cost, so the average fixed cost will change.

However, if the increase in total cost is along the total cost curve as output level increases, then both the ATC and AVC will change.

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