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Cost Curves

4. What effect would each of the following have on a firm's short-run marginal cost curve and its total fixed cost curve?

a. An increase in the wage rate
b. A decrease in the property tax
c. A rise in the purchase price of new capitol.
d. A rise in energy prices.

5. Suppose that a firm's cost per unit of labor is $100 per day and its cost per unit of capital is $400 per day.
a. Draw the isocost line for a total cost per day of $2000.
b. If the firm is producing efficiently, what is the marginal rate of technical substitution between labor and capital?
c. Demonstrate your answer to part (b) using isocost lines and isoquant curves.


Solution Preview

4. Fixed costs (FC) are costs that do not vary with the quantity of output produced. Marginal cost (MC) = change in total cost / change in quantity, and slope of TC curve.

a. an increase in the wage rate increases variable cost. The amount of increase in variable cost (VC) will depend on the ...

Solution Summary

The solution does an excellent job in describing the impact of certain events on the cost curves. The solutions goes into some amount of detail when it comes explaining the direction of the impact. However, it is still concise and easy to understand. In the second attachment, the solution draws the isoquant and isocost curves as well. Brief explanation to that is provided as well. This is an excellent response for students looking for concise answers to the problem being asked. Overall, a fair response.