Which curves are affected when the price of capital changes?A.ATC and AFCB.ATC, AFC, and MCC.ATC, AFC, MC, and AVCD.ATC, AFC, and AVCE.ATC and AVC
Question
Which curves are affected when the price of capital changes?A.ATC and AFCB.ATC, AFC, and MCC.ATC, AFC, MC, and AVCD.ATC, AFC, and AVCE.ATC and AVC
Solution
The curves that are affected when the price of capital changes are the Average Total Cost (ATC) and Average Variable Cost (AVC). This is because both of these costs include the cost of capital. Therefore, the correct answer is E. ATC and AVC.
Here's why:
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Average Total Cost (ATC): This is the total cost per unit of output. It includes both fixed and variable costs. Since the cost of capital is part of the total cost, a change in the price of capital will affect the ATC.
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Average Variable Cost (AVC): This is the variable cost per unit of output. Variable costs are those that change with the level of output, and they include the cost of raw materials and direct labor. If the price of capital changes, and if capital is considered a variable cost in the short run (for example, if more machines are needed to increase production), then the AVC will also be affected.
The other curves - Average Fixed Cost (AFC) and Marginal Cost (MC) - are not affected by the price of capital. AFC is not affected because fixed costs do not change with the level of output. MC is not affected because it is the cost of producing one more unit of output, which is not directly related to the cost of capital.
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