-Refer to the diagram above.Presume that any cost that the cost-plus regulated monopolist incurs is included in the average total cost (shown as ATC)and that all the costs can be included in the price that this monopolist can charge.An increase in fixed costs,such as expensive leather chairs,would cause the
A) ATC to shift down.
B) MC to shift up.
C) MC to shift down.
D) market to move closer to the surplus maximizing level of output.
E) market to move further away from the surplus maximizing level of output.

Question

-Refer to the diagram above.Presume that any cost that the cost-plus regulated monopolist incurs is included in the average total cost (shown as ATC)and that all the costs can be included in the price that this monopolist can charge.An increase in fixed costs,such as expensive leather chairs,would cause the
A) ATC to shift down. 
B) MC to shift up. 
C) MC to shift down. 
D) market to move closer to the surplus maximizing level of output. 
E) market to move further away from the surplus maximizing level of output.

Quizplus · Accepted Answer

An increase in fixed costs would increase the average total cost (ATC) but not affect the marginal cost (MC). This would make the market move further away from the surplus maximizing level of output, as the monopolist would need to charge a higher price to cover the increased costs, reducing output.

-Refer to the Diagram Above