Suppose a business experiences a sudden increase in its fixed costs. For example, suppose property taxes increase dramatically. What impact, if any, will this have the firm's AFC (average fixed cost), AVC (average variable cost), ATC (average total cost) and MC (marginal cost) and therefore these cost curves? Why?
When fixed prices go up the following will happen:
AFC = TFC/Q will go up because TFC rises.
AVC = TVC/Q will NOT change because TVC does not change.
ATC = TC/Q = (TVC + TFC)/Q will ...
This solution exemplifies average fixed cost (AFC) curve, average variable cost (AVC) curve, the average total cost (ATC) curve, and the marginal cost (MC).