Total cost of production is the sum of total variable cost and total fixed cost. If the total fixed cost alone increases
A) the average total cost curve shifts downward at all output levels.
B) the marginal cost curve shifts upward at all output levels.
C) the vertical distance between the average total cost curve and average variable cost curve increases at all output levels.
D) the average variable cost curve shifts upward at all output levels.

Question

Quizplus · Accepted Answer

The total fixed cost does not affect the marginal cost or the average variable cost, as these costs are related to variable costs. However, an increase in total fixed cost increases the average total cost at all levels of output because the fixed cost is spread over all units produced. This leads to a greater vertical distance between the average total cost curve and the average variable cost curve at all output levels, as the average variable cost remains unchanged while the average total cost increases.

Total Cost of Production Is the Sum of Total Variable