10. Which of the following could shift a firm's average variable cost curve upward?
Average Variable Cost (AVC) changes only when Marginal Cost (MC) changes, and vice-versa. AVC and MC are both pure variable cost measures so the answer will have to be something that would lead to an increase in MC. Let's examine each choice in turn.
- A decrease in the productivity of labor.
Labor is usually considered a variable input. As labor becomes less productive MC and AVC increase, so this is the correct answer.
- An increase in the productivity of labor.
More productive labor causes MC and AVC to decrease or shift downward.
- An increase in fixed cost.
AVC and fixed cost are unrelated.
- A decrease in the demand for the good produced by that firm.
A change in demand for a product doesn't affect the production costs curves. It may affect how much is actually produced and so affect where on the cost curve the firm operations, but it doesn't shift the curves.
- An increase in demand for the good produced by that firm.
A change in demand for a product doesn't affect the production costs curves. It may affect how much is actually produced and so affect where on the cost curve the firm operations, but it doesn't shift the curves.
