Multiple Choice
A firm is currently producing 100 units with an average total cost of \$44 and a marginal cost of \$32. If it were to increase production to 101 units, which of the following must be true?
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10. The Costs of Production
The Relationship Between Average Cost and Marginal Cost
Multiple Choice
The government imposes a \$10,000 per year inspection fee on all restaurants. Which cost curves are affected?
A
Average total cost and marginal cost
B
Average total cost and average fixed cost
C
Average variable cost and marginal cost
D
Average variable cost and average fixed cost
Verified step by step guidance1
Understand the types of costs involved: Fixed costs do not change with the level of output, while variable costs do. The inspection fee is a fixed cost because it does not vary with the number of meals served by the restaurant.
Identify which cost curves are affected by a change in fixed costs: Fixed costs affect the Average Fixed Cost (AFC) and Average Total Cost (ATC) but do not affect the Marginal Cost (MC) or Average Variable Cost (AVC).
Analyze the impact on Average Fixed Cost (AFC): Since the inspection fee is a fixed cost, it will increase the AFC. The AFC is calculated as Total Fixed Costs divided by the quantity of output.
Analyze the impact on Average Total Cost (ATC): The ATC is the sum of the Average Fixed Cost (AFC) and Average Variable Cost (AVC). Since the AFC increases due to the inspection fee, the ATC will also increase.
Conclude which cost curves are affected: The inspection fee affects the Average Total Cost (ATC) and Average Fixed Cost (AFC) curves, as these are the curves that incorporate fixed costs.
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