Which of the following would cause a firms per unit cost curves to shift upward
|
Show What Do I Need to Know About Cost Curves?Updated 2/6/2022 Jacob Reed The total cost curves are important, but pay special attention to the average cost curves. They will be important on most of the Micro Graphs.  Fixed Costs: These are costs for a firm which do not change with the quantity produced (they remain fixed). Rent, loan payments, insurance, etc will generally be the same whether a firm produces zero units of output or ten thousand. On a graph, FC are a horizontal line (indicating the same dollar amount for every quantity). A firm will operate as long as losses are less than fixed costs. Otherwise the firm will temporarily shut down. That is because fixed costs are “sunk costs” meaning they are already lost. Variable Costs: These are the costs which change with the quantity produced. Labor, electricity, and raw materials are all examples of variable costs because as more units are produced more money will be spent on labor, electricity, and raw materials. If total revenue is greater than total variable costs, the firm will operate and their losses will be less than fixed costs. If total revenue is less than total variable costs, the firm will temporarily shut down. Total Costs: Variable Costs plus Fixed Costs give you Total Costs. On a graph the TC curve is the same shape as the VC. The distance between the two curves is equal to the value of the Fixed costs. Marginal Cost: Marginal cost is the change in total cost divided by the change in quantity (MC = ∆TC/∆Q). Usually the change in quantity is just 1 so MC is the cost associated with producing just one more unit of output. The marginal cost curve intersects the ATC and AVC at their minimum points. That relationship is because as long as the cost of producing one more unit of output (MC) is less than the current average the average will fall. Also, as long as the cost of producing one more unit of output is higher than the current average, the average will rise. The Marginal Cost curve looks like the Nike swoosh. At low quantities, the marginal cost curve is downward sloping. That is due to specialization that causes increasing marginal returns. The quantity where the marginal cost curve is at its minimum is where diminishing marginal returns sets in. Diminishing marginal returns causes marginal costs to rise at higher quantities. Average Fixed Costs: Add up all of the fixed costs for a firm and divide by the quantity produced (AFC = FC/Q). Continually decreases. Rarely drawn because the distance between the ATC and AVC will be equal to the AFC at that quantity. Average fixed costs continually decrease as output increases. Average Variable Costs: Add up all of the variable costs for a firm and divide by the quantity produced (AVC = VC/Q). Decreases until it intersects the MC then increases. Looks like a smirk. Firms shut down (temporarily) when price falls below the minimum point on the AVC. Average Total Costs: Variable costs added to Fixed costs, then divided by Quantity gives you the Average Total Costs (ATC=TC/Q). It decreases until it intersects the MC then increases. Looks like a smile. The ATC tends to be a flipped average product curve. Producing the quantity where the ATC is at its minimum is productively efficient. Shifting Cost Curves: Changing a variable cost like per unit taxes or subsidies, labor costs or raw material costs will shift the ATC, AVC, and MC upward if it is a cost increase or downward if it is a cost decrease. Changing a fixed cost like lump sum taxes or subsidies, rent payments, or insurance payments, will only shift the ATC upward if it is a cost increase or downward if it is a cost decrease. Short-run Average Total Cost (SRATC) vs Long-run Average Total Cost (LRATC): When a business first opens, it will have a short-run average total cost curve for various quantities it can produce. In the short run only variable costs can be changed; fixed costs cannot. The firm can only change the rate of production by changing the amount of raw materials, labor, etc. it utilizes in the production process. In the long run, all costs (fixed and variable) can change. The firm can expand capacity, by purchasing more machinery or building a new factory. That change gives the firm a new short-run average total cost curve at greater quantities. As the firm continues to grow each new capacity creates a new short-run average total cost curve at a higher quantity. Each possible SRATC gives way to a long-run average total cost curve which shows average costs for all quantities the firm can produce in the long run at every possible capacity. Economies of scale: When the long-run average total cost curve is downward sloping, higher quantities have a lower average cost. This occurs for many firms as they expand and get more efficient allowing them to minimize average costs. This is called economies of scale. Many businesses will eventually reach a point where continuing to expand leads to the creation of inefficient bureaucracies, etc. which increase average costs. When this occurs, the long-run average total cost curve will be upward sloping. That is called diseconomies of scale. Between the downward sloping and upward sloping portions of the long run average total cost curve there is often a flat portion where the firm is experiencing neither economies of scale or diseconomies of scale. This area is called constant returns to scale. Here, as the business expands production capacity, the long run average costs do not change. Returns to scale: One of the reasons for economies of scale is that small firms can often increase resources used by a small amount while increasing output much more. This is called increasing returns to scale. Some firms may increase output at the same rate as they increase resources. That is called constant returns to scale. Other firms may increase output at a smaller rate as they increase resources. This is called decreasing returns to scale. The easiest way to figure out if a firm is experiencing increasing, decreasing or constant returns to scale is to double all inputs and see what happens to output. If output also doubles, the firm is experiencing constant returns to scale. If output more than doubles, it is experiencing increasing returns to scale. If output less than doubles, it is experiencing decreasing returns to scale. Cost Curve Math Ways to find fixed cost
Ways to find marginal cost
Ways to find variable cost
Ways to find the total cost
Ways to find average variable cost
Ways to find average total cost
Ways to find average fixed cost
What causes cost curves to shift upward?An increase in the price of a factor of production increases costs and shifts the cost curves upward. An increase in fixed cost does not affect the variable cost or marginal cost curves (TVC, AVC, and MC curves).
What two factors shift the cost curves?Shifting Cost Curves: Changing a variable cost like per unit taxes or subsidies, labor costs or raw material costs will shift the ATC, AVC, and MC upward if it is a cost increase or downward if it is a cost decrease.
Which cost curve is sloping upward?The marginal cost curve is generally upward-sloping, because diminishing marginal returns implies that additional units are more costly to produce. A small range of increasing marginal returns can be seen in the figure as a dip in the marginal cost curve before it starts rising.
Which of the following are likely to cause cost curves to shift quizlet?Which of the following are likely to cause cost curves to shift? Change in resource prices.
|
