Question

Why is a firm's marginal cost unaffected by an increase in fixed costs?

Answer 1

The total cost of a firm is composed of two parts. These are the total fixed costs and the total variable costs. The variable costs change with the output level while the fixed costs do not change as the output changes. Thus the marginal cost is the change in total cost as output changes. This is given only by the change in variable costs as fixed costs do not change as output changes. This can be given as follows:

TC = TVC + TFC

dTC/dq =dTVC/dq +dTFC/dq

dTC/dq = dTVC/dq + 0 ( as fixed costs do not change as the output changes).

Thus marginal costs are unaffected by change in fixed costs.