Question

1. A firm uses two inputs in production: capital and labor. In the short run, the firm cannot adjust the amount of capital it is using, but it can adjust the size of its workforce.
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   If the cost of renting capital increases, which of the following curves will be affected? (Check all answers that apply).

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   		Average variable cost
   		Marginal cost
   		Average fixed cost
   		Average total cost

2 points   

QUESTION 2

1. If the cost of hiring workers increases, which of the following curves will be affected? (Check all answers that apply).

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   		Marginal cost
   		Average variable cost
   		Average total cost
   		Average fixed cost

Answer 1

Answer : 1) Options C and D are the answer.

Because here capital is fixed in short-run. Now if capital rent increase then the total fixed cost increase and this affect both the average fixed cost and average total cost. Because average fixed cost totally comes from total fixed cost and average total cost include both average variable cost and average fixed cost. Therefore, options C and D are correct.

2) Options A, B and C are the answer.

Because here labor is variable in short-run. Now if the cost of hiring labor increase then this increase the total variable cost. Average variable cost and marginal cost both of them totally comes from total variable cost. And average total cost include both average variable cost and average fixed cost. So, if cost of hiring workers increase then this affect marginal cost, average variable cost and average total cost. Therefore, options A, B and C are correct.