Explain how new technologies, which increase productivity, affect the average variable cost, average total cost, and...

Explain how new technologies, which increase productivity, affect the average variable cost, average total cost, and marginal cost curves.

Expert Solution

New technologies which increase productivity will increase the total product, average product and the marginal product. Therefore the total product curve,the average product curve, and the marginal product curve will shift upward. New technologies increase the productivity and efficiency, therefore we can produce more output with the same amount of inputs. Therefore, the average variable cost, average total cost and marginal cost will decrease and the average variable cost curve, average total cost curve, and marginal cost curve will shift downward.

Usually the capital used by new technologies is more and the labor used by new technologies is less. This leads to an increase in the fixed cost and a decrease in the variable cost. At lower level of output the total cost increases and at higher level of output the total cost decreases. Therefore at lower level of output the average total cost curve moves upwards and at higher level of output the average total cost curve moves downwards.

Rahul Sunny answered 2 years ago

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