Cost Shift

   An increase in the price of a variable input, or a decrease in the productivity of a variable input will lead to an increase in Variable Cost, causing all three curves to shift back and to the left.

   Remember that a less productive input is a more costly input. If, for example, labor becomes less productive but the wage rate remains the same, less is being produced for each dollar spent on wages, which is equivalent to an increase in the price of a variable input. All three curves must shift because all three contain variable cost components.

Copyright © 1995-2004, Inc. - All Rights Reserved