Question

5) How would each of the following affect the firm's marginal, average, and average variable cost...

5) How would each of the following affect the firm's marginal, average, and average variable cost curves? Please use the diagram of cost curves to illustrate these changes (3 points)

A. An increase in wages

B. A decrease in material costs

c.    The government imposes a fixed amount of tax

Business   Economics   
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Answer #1

Wages paid to workers are a part of variable cost of production. Hence AVC, AC and MC all will rise up

Material cost is a part of of variable cost of production. Hence AVC, AC and MC all will shift down

A fixed amount of tax becomes a part of fixed cost so AVC and MC will remain unchanged while AC will increase

and shift up.

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