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Effect of 5 Conditions on a Firm's ATC and AVC Curves

Indicate the effect that each of the following conditions will have on a firm's average variable cost curve and its average total cost curve.

a. The movement of a brokerage firm's administrative offices from New York City to New Jersey, where the average rental cost is lower.

b. The use of two shifts instead of three shifts in a manufacturing facility.

c. An agreement reached with the labor union in which wage increases are tied to productivity increases.

d. The elimination of sugar quotas (as it pertains to those firms that use a lot of sugar, such as bakeries and soft drink bottlers).

e. Imposition of stricter environmental protection laws.

Solution Preview

a) Rent is a fixed cost. Average Variable Cost (AVC) will not change but Average Total Cost (ATC) will decrease.
b) Although the facility will be in ...

Solution Summary

This solution explains the effects that five changes will have on a firm's Average Total Cost (ATC) and Average Variable Cost (AVC) curves with a clear, concise sentence to answer each part of the question.