What will an increase in the interest payments on outstanding debt cause in the short run?
A) an increase in both AFC and ATC
B) an increase in MC and a decrease in AFC
C) an increase in MC, AVC, and ATC
D) no change, because capital is fixed in the short run

Question

Quizplus · Accepted Answer

An increase in interest payments on outstanding debt will increase both Average Fixed Costs (AFC) and Average Total Costs (ATC) because interest payments are considered fixed costs, and an increase in fixed costs raises both AFC and ATC.

What Will an Increase in the Interest Payments on Outstanding