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# Indicate how each of the following would shift the (1) MC curve, (2) AVC curve, (3) AFC curve

 ▲ 0 ▼ ♥ 0 Indicate how each of the following would shift the (1) MC curve, (2) AVC curve, (3) AFC curve, and (4) ATC curve of a manufacturing firm. In each case specify the direction of the shift. LO9.3 a. A reduction in business property taxes b. An increase in the nominal wages of production workers c. A decrease in the price of electricity d. An increase in insurance rates on plant and equipment e. An increase in transportation costs
Answer and explanations a
Explanation
Marginal cost refers to the change in total cost due to the production of one additional unit of output. It is computed as the ratio of change in total cost (TC) to the change in output (Q). The average variable cost is defined as the variable cost per unit output. It is the ratio of the variable cost to the quantity produced. The average fixed cost is defined as the fixed cost per unit output. It is the ratio of the fixed cost to the quantity produced. The average total cost is the cost per unit of output produced. It is obtained by dividing total cost by total output.

The reduction in business property tax falls under the fixed cost category. It leads to a fall in fixed costs. Hence, it only affects the average fixed cost and average total cost curve. Reduction in the AFC and ATC shifts both the curve downward. MC and AVC curves are not affected by the change in fixed costs.

MC and AVC curves would not be affected. The AFC and ATC curves both shift downward.

b
Explanation
Marginal cost refers to the change in total cost due to the production of one additional unit of output. The average variable cost is defined as the variable cost per unit output. The average fixed cost is defined as the fixed cost per unit output. It is the ratio of the fixed cost to the quantity produced. The average total cost is the cost per unit of output produced. It is the sum of average fixed cost and average variable cost.

Variable cost is defined as the type of cost which changes with the change in the level of quantity. The cost of wages is coming under the variable cost because it changes with respect to change in the number of units produced. An increment in the nominal wage rate shifts the MC, ATC, and AVC curves upward. AFC curve remains unchanged.

The MC, AVC, and ATC curves shift upward with no change in the AFC curve.

c
Explanation
Marginal cost is the addition of cost due to the production of one additional unit of output. The average variable cost is defined as the variable cost per unit output. The average fixed cost is defined as the fixed cost per unit output. It is the ratio of the fixed cost to the quantity produced. The average total cost is the cost per unit of output produced. It is the sum of average fixed cost and average variable cost.

Variable cost is defined as the type of cost which changes with the change in the level of quantity. The expenses on electricity are coming under the variable cost because it changes with respect to change in the number of units produced. A decrement in the expense of electricity shifts the MC, ATC, and AVC downward. It will not affect the AFC curve.

The MC, AVC,s and ATC curve shift downward with no change in the AFC curve.

d
Explanation
Marginal cost is the addition of cost due to the production of one additional unit of output. It is computed as the ratio of change in total cost (TC) to the change in output (Q).The average variable cost is defined as the variable cost per unit output. It is the ratio of the variable cost to the quantity produced. The average fixed cost is defined as the fixed cost per unit output. It is the ratio of the fixed cost to the quantity produced. The average total cost is the cost per unit of output produced. It is obtained by the sum of average fixed cost and average variable cost.

The fixed cost is defined as the one-time expenses which do not change with respect to the change in the quantity level. The expenses on insurance fall in the fixed cost category. It leads to a fall in fixed costs. Hence, it only affects the average fixed cost and average total cost. An increment in the AFC and ATC shifts both the curve upward.

The MC and AVC curves would not be affected. The AFC and ATC curves both shift upward.

e
Explanation
Marginal cost is the addition of cost due to the production of one additional unit of output. The average variable cost is defined as the variable cost per unit output. The average fixed cost is defined as the fixed cost per unit output. It is the ratio of the fixed cost to the quantity produced. The average total cost is the cost per unit of output produced. It is the sum of average fixed cost and average variable cost.

Variable cost is defined as the type of expenses associated with the production process which change with the change in the level of quantity produced. The cost of transportation is coming under the variable cost because it changes with respect to the change in the number of units produced. An increment in transportation cost shifts the MC, ATC, and AVC upward. AFC curve remains unchanged.