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: 8c

Answer

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

Work Step by Step

Since electricity registers as variable costs (charges depends on short term usage), there are no changes in the fixed cost (ceteris paribus), the average fixed cost curve will remain unchanged. Electricity bills are variable costs, as they can be changed in the short run, due to the usually short contracts of production workers. Thus, an decrease of price of electricity would see variable cost at every output level increasing uniformly. Thus, the average variable cost curve would move downward uniformly. The decrease in the average total cost is due to the decrease in the average variable cost (total cost is the addition of variable and fixed cost). Since the average variable 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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