ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Average total cost will increase
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Marginal cost will increase
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Average variable cost will increase
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The profit-maximizing level of output will increase
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Detailed explanation-1: -If a new tax on capital increases a firm’s fixed cost of production, which of the following will occur in the short run? Average total cost will increase.
Detailed explanation-2: -If the total fixed cost goes up, each unit produced has to bear more of the fixed cost. This means that the average total cost curve goes up.
Detailed explanation-3: -Diseconomies of scale refers to a situation where as output increases, average costs increase also. The long-run average cost curve shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology.
Detailed explanation-4: -If a firm’s long-run average costs increase at higher levels of output, then the firm becomes less efficient at producing the good as it produces more of it. The firm experiences diseconomies of scale. If a firm experiences lower long-run average costs as it increases output, then the firm exhibits economies of scale.