In the short run, when capital is a fixed factor, a rise in the cost of labour
A) shifts the AVC curve down.
B) shifts the marginal cost curve upwards.
C) leaves the ATC curve unchanged.
D) leaves the MC curve unchanged.
E) shifts the total product curve downwards.

Question

Quizplus · Accepted Answer

When capital is a fixed factor, the cost of labor is a variable cost. A rise in the cost of labor would increase the variable cost per unit, which would shift the marginal cost (MC) curve upwards. This is because the increased cost of labor would increase the cost of producing an additional unit of output, making the MC curve steeper. The AVC curve would also shift upwards, but the ATC curve would remain unchanged because it includes both fixed and variable costs. The total product curve would not be affected by the cost of labor.

In the Short Run, When Capital Is a Fixed Factor