Question

What impact would the elimination of tariffs on Brazilian wheat imports have on the SRATC, AVC, AFC, MC and LRATC curves of U.S Bread producers?

Answer 1

The elimination of tariffs on Brazilian wheat imports would mean that the supply of wheat will increase in the US market. This means the price of wheat will go down. As wheat is a supply ingredient for bread, this means the cost of factors of productions will go down for US bread producers. This will have the following impacts on the variables given

SRATC- The short run average total cost would go down as input costs are going down.
AVC- Variable cost includes the cost of inputs, which is wheat. As the price of wheat goes down, it means variable costs go down and hence Average Variable Cost goes down.
AFC- Fixed costs have nothing to do with input costs and by definition, are fixed, and hence will remain same.
MC- Marginal costs would also go down, since MC is just the cost of another unit of output. The extra cost of producing one more unit will go down since variable costs are now lower.
LRATC- The Long Run Average Total Cost would remain same as it is the lowest cost of producing a particular product over the long run. Since this is already lowest, it will remain same.