How would each of the following affect the marginal cost function of a bakery (SHIFT UP,...

How would each of the following affect the marginal cost function of a bakery (SHIFT UP, SHIFT DOWN or NO EFFECT)

a. An increase in the monthly rent
b. An increase in the minimum wage of bakers
c. A property tax reduction
d. A decrease in the price of flour
e. An increase in the annual insurance premium

Solutions

Expert Solution

Marginal cost will show a shift either upwards or downwards, depending upon whether the change influences the level of output. This implies that if there is a change in the fixed cost of production there will be no change in the marginal cost. But if there is a change in the variable cost of production it will change the marginal cost as well.

1) No effect. Monthly rent is a kind of a fixed cost which has to be paid even when there is a change in production or there is no production. It does not depend upon the level of output which means marginal cost will not change.

2) Shifts up. It is a variable cost and increase in variable cost will increase marginal cost as well

3) No effect. It is a kind of a fixed cost. It does not depend upon the level of output which means marginal cost will not change.

4) Shift down. It is a variable cost and decrease in variable cost will decrease marginal cost

5) No effect. It is a kind of a fixed cost. It does not depend upon the level of output which means marginal cost will not change.

Rahul Sunny answered 1 week ago

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