How would a $10 increase in an avoidable per-unit fixed cost effect a price-taking firm's supply curve?
A) MC would increase by $10, and AC would not change.
B) AC would increase by $10, and MC would not change.
C) MC and AC would both decrease by $10.
D) MC and AC would both increase by $10.

Question

Quizplus · Accepted Answer

The avoidable per-unit fixed cost is a part of the average fixed cost (AFC), which is constant in the short run. Hence, an increase in avoidable per-unit fixed cost will cause an upward shift of the firm's average total cost (ATC) curve by the amount of the increase in AFC. As a result, the marginal cost (MC) will not change, but the average cost (AC) will increase by the same amount as the increase in AFC. Therefore, the supply curve of the price-taking firm will shift upward, and the firm will be willing to supply a lower quantity of output at every price.

How Would a $10 Increase in an Avoidable Per-Unit Fixed