Figure 8.5 Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 8.5.If the firm's fixed cost increases by $1000 due to a new environmental regulation, what happens in the diagram above?
A)All the cost curves shift upward.
B)Only the average variable cost and average total cost curves shift upward; marginal cost is not affected.
C)Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected.
D)None of the curves shifts; only the fixed cost curve, which is not shown here, is affected.

Question

Figure 8.5  Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 8.5.If the firm's fixed cost increases by $1000 due to a new environmental regulation, what happens in the diagram above?
A)All the cost curves shift upward. 
B)Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)None of the curves shifts; only the fixed cost curve, which is not shown here, is affected.

Quizplus · Accepted Answer

When fixed costs increase due to a new environmental regulation, it does not directly affect any of the variable costs. Therefore, only the average total cost curve shifts upward to reflect the effect of the increased fixed cost on the overall cost per unit produced. The marginal cost and average variable cost curves are not affected since they only reflect the variation in variable costs.

Figure 85 Figure 8