M1 Unit 5 Essay

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Assignment 1 Essay There are many factors that influence a firm’s marginal cost, average variable cost, and average total cost. We will only be looking at three of these factors. These factors are an increase wages such as minimum wage, a decrease in production material prices, and a fixed tax imposed by the government. Below you will find a chart summarizing the effects of these factors with further detail following the chart. | |Marginal Cost |Average Variable Cost |Average Total Cost | |Wage Increase |Increase |Increase |Increase | |Cost Decrease |Decrease |Decrease |Decrease | |Fixed Tax |No Change |No Change |Increase…show more content…
An increase in wages will increase the average variable cost. The more people required to produce additional units of output will be more expensive due to an increase in wages. A lower material cost will result in a lower average variable cost because more units can produced at a lower cost. If the firm produces the same amount of units the cost will fall. The fixed tax will not change the average variable cost. Because a fixed tax is a fixed cost it has no impact on variable cost. Average Total Cost Average total cost is “the total cost per unit of output, which also equals average fixed cost plus average variable cost. Because both the marginal and average variable cost increase due to a wage increase and decrease due to material cost decrease, average total cost does so likewise. The biggest difference is that a fixed tax imposed by the government does increase the average total cost. A fixed tax is a fixed cost and is included in the total
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