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: 8a

Answer

The average fixed cost curve would move downward uniformly. The average variable cost curve would remain unchanged. The average total cost curve would shift downward uniformly. The marginal cost curve would remain unchanged.

Work Step by Step

Since property taxes registers as a fixed cost, a decrease in fixed cost would result in the average fixed cost curve to move downward at every level. Since there are no changes in the variable cost (ceteris paribus), the average variable cost curve will remain unchanged. The decrease in the average total cost is due to the decrease in the average fixed cost (total cost is the addition of variable and fixed cost). Since the average fixed cost curve decreases uniformly, the total cost curve would also move downward uniformly. Since the marginal cost curve is derived from the gradient of the total cost curve, and the total cost curve’s gradient remained unchanged (it merely moved downward), the marginal cost curve would remain unchanged as the gradient stays the same.
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