Question

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.

a. A reduction in business property taxes.

MC	AVC	AFC	ATC
(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change

b. An increase in the nominal wages of production workers.

MC	AVC	AFC	ATC
(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change

c. A decrease in the price of electricity.

MC	AVC	AFC	ATC
(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change

d. An increase in insurance rates on plant and equipment.

MC	AVC	AFC	ATC
(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change

e. An increase in transportation costs.

MC	AVC	AFC	ATC
(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change	(Click to select)   Shift up   Shift down   No change

Answer 1

A.

A reduction in business property tax, reduces the fixed cost of production. It leads to:

MC does not change.

AVC does not change.

AFC decreases and AFC curve shifts down.

ATC also decreases and ATC curve shifts down.

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B.

Increase in nominal wages of production workers, will increase the variable cost and overall cost of production: It leads to:

MC increases and shifts up.

AVC increases and shifts up.

AFC does not change.

ATC increases and shifts up.

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C.

Decrease in price does not affect the cost.

So, MC, AVC, ATC and AFC do not change.

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D.

Increase in insurance rate, is going to increase the overhead cost of production. It leads to:

MC does not change.

AVC does not change.

AFC increases and AFC curve shifts up.

ATC also increases and ATC curve shifts up.

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E.

Increase in transportation cost, is going to increase the overhead cost of production. It leads to:

MC does not change.

AVC does not change.

AFC increases and AFC curve shifts up.

ATC also increases and ATC curve shifts up.