Cost Curves
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A) If the government imposes a $1 per-unit tax, how do the marginal, average total, and average variable costs change? What if instead the government imposes a $100 per-firm tax? (ASSUME NO CHANGE IN THE AMOUNT OF SALES.)
B)Why are short-run marginal cost curves expected to slope upward?
C)If you know that average costs are increasing, is the marginal cost curve above or below the average cost curve?
D)If you know that marginal costs are increasing, is it necessarily true that the average cost curve is below marginal cost?
E)Why does the average total cost curve always start above the marginal cost curve in the short run?
F)If marginal cost is equal to average cost, what do you know about that point on the average cost curve? Why?
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Solution Summary
The solution explains several managerial accounting concepts while answering the questions below. These concepts are basic to the understanding of any cost analysis.
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Answer (A):
If the government imposes a $1 per-unit taxes, the marginal cost will increase by $1 for each unit produced. The average variable cost will also increase by $1. The average total cost will also increase but its increase cannot be calculated because the amount of fixed cost is not known.
If however, the government imposes a per firm ...
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