What will an increase in advertising expenditures cause in the long run?
A) an increase in MC and a decrease in AC
B) an increase in both MC and AC
C) an increase in AC and no change in MC
D) a decrease in both MC and AC

Question

Quizplus · Accepted Answer

An increase in advertising expenditures will lead to an increase in fixed costs, which will cause an increase in average cost (AC). However, it should not affect marginal cost (MC) since MC is determined by variable input costs. Therefore, the correct choice is C, which says that advertising expenditure will cause an increase in AC but no change in MC.

What Will an Increase in Advertising Expenditures Cause in the Long