In the short run, an increase in the price of one of the fixed inputs will cause average cost to ______________ and marginal cost to ______________.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aincrease; decreasebnot change; not changecincrease; increaseYour answerddecrease; decreaseeincrease; not change
Question
In the short run, an increase in the price of one of the fixed inputs will cause average cost to ______________ and marginal cost to ______________.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aincrease; decreasebnot change; not changecincrease; increaseYour answerddecrease; decreaseeincrease; not change
Solution
The correct answer is c) increase; increase.
Here's why:
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In the short run, some factors of production are fixed, such as capital or land. These are known as fixed inputs.
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If the price of one of these fixed inputs increases, the cost of production will also increase. This is because the firm is still using the same amount of the fixed input, but now it's more expensive.
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The average cost (total cost divided by the quantity of output) will increase because the total cost has increased while the quantity of output remains the same.
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The marginal cost (the cost of producing one more unit of a good) will also increase. This is because the cost of the fixed input has increased, so the cost of producing each additional unit will also be higher.
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