Indicate how each of the following would shift the (1) marginal-cost curve, (2) average-variable-cost curve, (3) average-fixed-cost curve, and (4) average-total-cost curve of a manufacturing firm. In each case specify the direction of the shift. a. A reduction in business property taxes. b. An increase in the nominal wages of production workers. c. A decrease in the price of electricity. d. An increase in insurance rates on plant and equipment. e. An increase in transportation costs.

a. A reduction in business property taxes: MC-No change; AVC-No change; AFC-Shift down; ATC-Shift down. (Fixed cost)

b. An increase in the nominal wages of production workers: MC-Shift up; AVC-Shift up; AFC-No change; ATC- Shift up. (Variable cost)

c. A decrease in the price of electricity: MC-Shift down; AVC-Shift down; AFC-No change; ATC-Shift down. (Variable cost)

d. An increase in insurance rates on plant and equipment: MC-No change; AVC-No change; AFC-Shift up; ATC-Shift up. (Fixed cost)

e. An increase in transportation costs: MC-Shift up; AVC-Shift up; AFC-No change; ATC-Shift up. (Variable cost)

Explanation:

Where;

MC is the Marginal Cost.

AVC is the Average Variable Cost.

AFC is the Average Fixed Cost.

ATC is the Average Total Cost.

1. Marginal Cost (MC) can be defined as the cost incurred in the production of one unit of a product.

2. Average Variable Cost (AVC) can be defined as the total variable cost per unit of production. It is calculated by dividing total variable cost (TVC) by total output of production (Q);

AVC = \frac{TVC}{Q}

3. Average Fixed Cost can be defined as the fixed cost per unit of production. It is calculated by dividing fixed cost (FC) by total output of production (Q);

AFC = \frac{FC}{Q}

4. Average Total Cost (ATC) can be defined as the overall cost of production divided by total output of production. It is calculated by dividing total cost by total output of production or by adding TVC and TFC.