Figure 7-5 Figure 7-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7-5.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 shift; only the fixed cost curve, which is not shown here, is affected.

Question

Figure 7-5  Figure 7-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7-5.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 shift; only the fixed cost curve, which is not shown here, is affected.

Quizplus · Accepted Answer

When fixed cost increases due to a new environmental regulation, it does not affect variable costs or marginal cost. Therefore only the average total cost curve would shift upward, as it represents the sum of variable cost and fixed cost per unit of output. Average variable cost and marginal cost would remain the same.

Figure 7-5 Figure 7-5 Shows Cost and Demand Curves