Question

Suppose that in an industry, workers are hired on an hourly basis. Labor costs are variable costs, in that the firm needs to hire more workers (for more hours) to increase production, and the firm can choose to hire zero workers if it does not want to produce. Suppose that market wages go up, and hiring workers becomes more expensive per hour, while other costs remain the same. Consider how this will affect the cost curves for a firm in this industry:  

a. What will happen to the AFC curve?  

b. What will happen to the AVC curve?  

c. What will happen to the MC curve?  

(Choose among the following: shift up, shift down, stay the same)

Now, consider how this will affect the minimum point of the ATC curve

d. What will happen to the efficient scale, the production quantity that minimizes ATC ?

e. What will happen to the average cost of production at the efficient scale (the lowest ATC) ?

(Choose among the following: will be larger, will be smaller, will stay the same)

Answer 1