Indicate the effect that each of the following conditions will have on a company's average variable cost (AVC) and average total cost (ATC) curves:
a. The movement of a company's administrative offices from New York City to New Jersey where rent costs are lower.
b. The use of two work shifts instead of three in a manufacturing plant.
c. An agreement reached with the labor union in which wage increases are tied to productivity increases of the workers.
d. The elimination of sugar quotas.
e. The imposition of strict environmental protection laws.
2 answers
I am not sure, I need some help with these.
1) Rent is not part of variable cost and hence variable cost will remain same whereas average cost would come down with decrease in rent.
2) Reducing no of shift would decrease out put. Hence, both variable cost and average cost will increase and move up in the graph.
3) Variable cost would remain same if increase in productivity and wage increase proportionately. Also average cost would remain same.
4) Both variable cost and average cost would move up the graph.
5) Might cost increase in both variable and average cost in short term but can be beneficial in long term.
2) Reducing no of shift would decrease out put. Hence, both variable cost and average cost will increase and move up in the graph.
3) Variable cost would remain same if increase in productivity and wage increase proportionately. Also average cost would remain same.
4) Both variable cost and average cost would move up the graph.
5) Might cost increase in both variable and average cost in short term but can be beneficial in long term.