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23 August, 14:48

Indicate how each of the following would shift the (1) marginal-cost curve, (2) average-variable-cost curve, (3) average-fixed-cost curve, and (4) average-total-cost curve of a manufacturing firm. In each case specify the direction of the shift.

Required:

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.

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  1. 23 August, 15:03
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    a. A reduction in business property taxes. Fixed cost.

    Marginal cost curve = No change

    Average variable cost curve = No change

    Average-fixed-cost curve = Shift down

    Average-total-cost curve = Shift down

    b. An increase in the nominal wages of production workers is a Variable cost.

    Marginal cost curve = Shift up

    Average variable cost curve = Shift up

    Average-fixed-cost curve = No change

    Average-total-cost curve = Shift up

    c. A decrease in the price of electricity (Variable cost)

    Marginal cost curve = Shift down

    Average variable cost curve = Shift down

    Average-fixed-cost curve = No change

    Average-total-cost curve = Shift down

    d. An increase in insurance rates on plant and equipment. (Fixed cost)

    Marginal cost curve = No change

    Average variable cost curve = No change

    Average-fixed-cost curve = Shift up

    Average-total-cost curve = Shift up

    e. An increase in transportation costs. (Variable cost)

    Marginal cost curve = Shift up

    Average variable cost curve = Shift up

    Average-fixed-cost curve = No change

    Average-total-cost curve = Shift up
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