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Marginal & Average Cost Curve

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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Answer (A):
A per-unit tax (such as an excise tax) will increase the marginal cost by $1. Also, the average total and average variable cost will also increase, becuase of this increase in cost. If instead, the government only imposes a $100 per-firm tax, then the average total cost increases. The marginal cost and average variable cost remains the same because that ...

Solution Summary

The solution explains the marginal and average cost concepts in very good detail.