Question

4. Cost-curve shifters Aa Aa E The following graphs depict the costs and expenses in the short run and the long run for Albert's Pizza Place. Albert must pay $200 per month to rent pizza ovens (including sales tax) and $15 per hour for his workers. He also pays an additional $2,000 a month for a license that allows him to sell beer at his pizza parlor. Short Run Long Run DOLLARS DOLLARS OUTPUT OUTPUT Now, suppose that new legislation increases the cost of beer and wine licenses from $2,000 a month to $2,500 a month. Fill in the following table with information on how each curve is affected, if at all. Effect? Effect? Short-Run Curve Marginal cost Average cost Average expenditures Long-Run Curve Marginal cost Average variable cost Average cost

Answer 1

ANSWER :

(1) In short run, lower price of fixed asset (oven) decreases ATC, MC, TFC and AFC.

Marginal cost - Shift downward

Average cost - Shift downward

Average expenditure - Decrease

(2) In long run, fixed cost doesn't exist and all costs are variable, so lower price of fixed asset doesn't impact variable cost.

Marginal cost - No change

Average variable cost - No change

Average cost - Shift downward

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