if workers negotiate a higher wage, increasing the cost of labor for a business, how will the firms marginal…

if workers negotiate a higher wage, increasing the cost of labor for a business, how will the firms marginal cost (mc), average variable cost (avc), average total cost (atc), and average fixed cost (afc) change?\n\na) mc: increase\navc: increase\natc: increase\nafc: increase\n\nb) mc: increase\navc: increase\natc: no change\nafc: no change\n\nc) mc: no change\navc: no change\natc: increase\nafc: increase\n\nd) mc: no change\navc: increase\natc: no change\nafc: increase\n\ne) mc: increase\navc: increase\natc: increase\nafc: no change

if workers negotiate a higher wage, increasing the cost of labor for a business, how will the firms marginal cost (mc), average variable cost (avc), average total cost (atc), and average fixed cost (afc) change?\n\na) mc: increase\navc: increase\natc: increase\nafc: increase\n\nb) mc: increase\navc: increase\natc: no change\nafc: no change\n\nc) mc: no change\navc: no change\natc: increase\nafc: increase\n\nd) mc: no change\navc: increase\natc: no change\nafc: increase\n\ne) mc: increase\navc: increase\natc: increase\nafc: no change

Answer

Brief Explanations:

Labor cost is a variable cost. When labor cost increases:

  • Marginal cost (MC) is the cost of producing one - more unit. Higher labor cost means higher MC.
  • Average variable cost (AVC) = Total variable cost / Quantity. With increased labor cost (a variable cost), AVC increases.
  • Average total cost (ATC)= Total cost / Quantity. Since total cost increases (due to increased variable cost), ATC increases.
  • Average fixed cost (AFC) = Total fixed cost / Quantity. Fixed cost is not affected by labor cost changes, so AFC remains the same.

Answer:

E. MC: Increase, AVC: Increase, ATC: Increase, AFC: No change