Economics: Principles, Problems, and Policies, 19th Edition

Published by McGraw-Hill Education
ISBN 10: 0073511447
ISBN 13: 978-0-07351-144-3

Chapter 7 - Businesses and the Costs of Production - Questions - Page 161: 7c

Answer

If total fixed cost was altered to be 100 dollars, the average variable cost curve would remain the same, and the average total cost curve would retain its shape, but shift upward (as fixed costs now increase), with the divergence between the variable cost and total cost curves increasing. If total variable cost was decrease by 10 dollars at each level of output, there would be a uniform decrease in the average variable cost curve, without a change in shape. This would affect the average total cost curve by also shifting it downward by 10 dollars.

Work Step by Step

The total fixed cost and total variable cost are independent of each other, but the total cost is dependent on both fixed cost and variable cost, being an addition of both. Thus, when total fixed cost increases, the curve would move upward uniformly, as will the total cost curve. Similarly, when the variable cost decreases uniformly, the total cost will too.
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